Connect the Dots to this Stock

 | Dec 16, 2011 | 7:30 AM EST
  • Comment
  • Print Print
  • Print
Stock quotes in this article:






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.

Columnist Conversations

we like this chart here, it appears ready to move higher. BOUGHT BZUN OCT 35 CALL AT 3.40
Large-cap, high-quality McKesson (MCK) is too cheap now, at $147.51 or so. The stock hit $243.60 more than 2.5...
View Chart »  View in New Window » View Chart » 



News Breaks

Powered by


Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.