We are now in leader-versus- laggard zone, and that's one of the most fraught moments in investing. In other words, after a big run in the best groups for the year, now you have to decide: when you buy something, do you buy a stock that's already soared and might be tapped out, or do you buy something that hasn't moved much at all and might be suspect or has just been left behind for no real good reason?
Let's take the most glaring cases right now: retailers and restaurants.
Urban Outfitters (URBN) would be the company that now has the strongest fundamentals in the industry. It is a three-legged beast: Free People, which has always been strong, Anthropologie, with a fantastic new home furnishing look, and Urban, the namesake business which has gone from negative to positive comps helped by a really terrific new set of designs. The transformation is stupendous.
But so is the stock. It's up an astounding 26.73%, besting all retailers. You would now be coming into the retailer with the most momentum in the country by far, yet with a stock that you have to believe reflects a tremendous amount of what has transpired.
Now let's contrast that with Macy's (M). Here's a stock that has done absolutely nothing, in fact, it's off 2.46%, a truly sour performance. Can it get better? Of course. However there is no catalyst, it doesn't report until May and I don't see any real growth or real turn.
All things considered, I would rather buy Urban Outfitters, because I know that retail investing is momentum driven and I know that Urban just reported its first real good quarter in ages. Macy's? It's cheap, but I lack a thesis for buying it other than Terry Lundgren's a good CEO and he will figure it out.
How about Ross Stores (ROST) and TJX (TJX)? Here are two off-priced retailers that are certain to benefit from the clothing stalled by the port slowdown out west that now must be offloaded to one of these two because the season was missed. TJX has put out terrific numbers over time, but that last quarter gave you guidance that the street didn't like.
In the meantime, you have Ross just delivering and delivering. But Ross is up 13% and TJX is flat and Ross has a 22 multiple and TJX sells at 20x earnings. In this case, I would say buy neither, but if Ross Stores comes down, just buy it as the company has a lot of room to expand and is very easy off price story to comprehend without all of the TJX's moving parts.
How about the restaurant group? Tough. There's Jack in the Box (JACK), which I love and has been putting out powerhouse numbers from its namesake stores and there's been a huge turn in Qdoba, making it the company to beat in two different quick serve categories. And then there's Chipotle (CMG), the best of breed, which is actually unchanged for the year. I am a huge fan of JACK, but how can you not want to play catch-up with Chipotle? I would go for the latter, unless JACK came in hard.
There's a whole host of these: Starbucks (SBUX) vs. Dunkin (DNKN), CVS (CVS) vs. Rite Aid (RAD). Endless. Each needs to be puzzled over; there are no easy answers.
These are the decisions everyone's making right now: to trade down to something that hasn't moved hoping that the stock plays catch-up on any good news, or to keep riding the winning horse. It's case by case, and it's always been like this after a run. There's no cut-and-dried answer, but you never go wrong, oddly, with the winning horse because horses win for a reason. When they aren't winning, they are very hard to turn around.
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