Are you playing connect the dots when investing? If you're not, you could be are missing that 20% gain in a stock or buying at peaks while the smart money cashes in their chips.
Connecting the dots is a game we all played as children, but as investing adults I strongly encourage you to channel that inner kid and break out the pen once more.
FedEx (FDX) surprised the market with its earnings, mainly on yield improvement, with respectable volume. Full-year guidance was reaffirmed, but the Street already thinks that's conservative. People are simply buying things on a desktop, laptop or handheld device.
Next, look at the National Retail Federation. I'm not a big fan of these third-party retail survey takers as their data always skews too bullish, causing the market to get ahead of itself. Still, it's at least worthwhile to acknowledge that the NRF upwardly revised its holiday sales forecast, citing online consumption patterns.
November government retail sales surprisingly missed consensus estimates (the market was built up by data from those aforementioned survey takers), causing retail stocks to get hit. Work paychecks are being stretched and unemployment checks are skimpy, but prices at retailers are higher year-over-year. Not every single merchandise category in retail will flourish month-to-month. An area that did stand out favorably in November was online shopping.
The efforts of a desperate management team were evidence in Best Buy's (BBY) results. Shares nosedived as profit margins contracted in lock step with sharper pricing strategies. Online shopping is winning, Best Buy is losing and that trend will not be changing anytime soon.
By Thursday, my trusty pen had connected dots that spelled "Amazo" and the "n" came with news that Kindles of all models are flying from Amazon's (AMZN) distribution facilities. Despite the Kindle Fire receiving only adequate reviews, the accessible price point and respectable Average-Joe user experience got the job done in the holiday season. The Street may have been too bearish on Kindle's holiday prospects, which is half of the dots needed to finish off the "n" in the puzzle. Amazon's site is a giant vortex sucking in consumer dollars this holiday season.
The company is investing aggressively to support future growth (capex is up dramatically past four quarters with ROIC down). But its sales are shaping up to be ahead of consensus for the holiday quarter, which may drive stronger-than-expected operating expense leverage and earnings. The Street is not fully acknowledging this new information, which sounds like a mispriced opportunity, but note the stock is always going to be expensive on a relative basis.