Sometimes, idle hands are the best thing to have when the markets are getting rocked, as has generally been the case in the past few sessions. By sitting tight on buying or selling, and just watching the market from afar, it could save one from stupid decisions (selling Apple on a down day in the markets on Monday, for example) that are regretted by January 2016 and beyond. The main issue that a lack of action causes is a wandering mind. Then, confusion on what strategy to employ takes root, which in and of itself could lead to the silly mistakes, along the lines of day-trading a volatile market with a bearish tilt.
Although I have expressed reservations on being long stocks for several days, I do find myself confused on the new path to trail-blaze. In my case, such confusion stems from conversations I have with leading executives, which often do not jibe with the end-of-the-world headlines floating around the Internet, or the trading activity in particular stocks. Here are the test cases.
I get the sense that Target had a very solid holiday selling season in the U.S., solid enough to at least justify the 20% appreciation in the stock in three month's time. My email chats with the company since Black Friday have shed light on a robust online business, and the type of demand for big ticket stuff that suggest most consumers are over the data breach and want to spend their fuel savings at the local Target store. But, how do I rationalize a comeback quarter for Target with today's negative Nellie headlines? Do fewer people getting dirty on oil rigs derail sales at Target's Midwest locations in 2015? If so, does Target guide conservatively for the first quarter and the fiscal year 2015? If that goes down, will Wall Street drop Target's suddenly hot stock, essentially tossing up an emphatic middle finger to the solid sales numbers? Like I said, confusion is rampant.
Nevertheless, as I have written on TheStreet since October, I remain keen on Target shares (after a long period of steadfast bearishness), believing the U.S. turnaround is actually happening, and the new CEO does the right thing and exits Canada. That exit from billions of dollars of Canadian losses would be rewarded by the market in the form of a higher multiple for Target's shares, and by Wall Street via upgraded earnings estimates for 2015, etc.
The U.S. Consumer
I talked at length with the number-two executive at denim-marker Levi's for a piece on TheStreet Tuesday afternoon. Fascinating interview. The company indeed has some interesting new products on the way that could add gas to the nearly flamed-out U.S. denim market. Lookout, Lululemon.
But, what I was able to discern regarding trends during the holiday season were intriguing as well. Levi's noted conversion at its U.S. retail stores was positive, and that pricier skinny denim was a best-seller. No small feat, given challenged traffic at malls and outlets where Levi's stores live.
What this information told me is that consumers wanted to, and were able to, buy premium denim. High-five to the U.S. economic recovery and plunging fuel bills. The demand for premium denim would imply that a rip-roaring stock market helped support strong holidays for Nordstrom (JWN) and Tiffany (TIF). Though I am a touch worried about the outlook for Tiffany this year, due to the stronger dollar.
On the other hand, I left the interview concerned on the discounting Levi's had to do at department stores like Macy's (M) and J.C. Penney (JCP), and online, to drive sales of its non-premium lines. I'm also concerned with the impact to profit margins from the investments in design and marketing to reignite the denim category in the U.S. Hence, I would take a little off the table on Sozzi favorite VF Corp (VFC), going into the company's earnings. VF sells the Lee and Wrangler brands, and it experienced challenges in the key woman's denim market for much of 2014. Further, I do have some reservation on the quarter from The North Face; the weather has not been super cold, and Nike (NKE) and Under Armour (UA) have upped their games on lightweight and heavy jackets this winter.