Sometimes it's as simple as asking what does this market want? What's it telling you to buy? What's the market's agenda? If you figure that out, you have the key to what's driving things, the real recipe for today's gains, and I think it could continue tomorrow with some of these reports after the bell.
But look no further than tonight's Mad Money for the answers behind today's rally, because we happen to have three of the best-performing stocks in the market today, three that define the moment, that are beacons to follow: Snap-On Tools (SNA), Domino's (DPZ) and Skechers (SKX).
At first glance, these three have nothing whatsoever in common. You have a company that develops and sells precision tools for various industries, especially auto repair shops. You have a company that makes, sells and delivers pizza and other foods to your door. And you have a company that makes shoes.
Big deal. Pedestrian. I know.
But what do they all have in common? How about four characteristics that define what wins in this market?
First, they have gigantic and surprising sales and earnings power. Domino's put up19% earnings growth including a 14% comparable-store sales number for the United States. That's incredible, much better than the consensus analysts were looking for.
Snap-On delivered 16% earnings growth, selling tools for heaven's sake. This company has a history of delivering these kinds of gains. They are like clockwork. Money managers love clockwork.
Skechers put up a phenomenal 40% sales growth number and amazing gross margins. Its earnings increased a staggering 80% year over year. That's just incredible growth. Unworldly.
Second criterion: surprise factor. Snap-On's been delivering so consistently that I feared a ho-hum reaction to today's report. Not at all. You got terrific sales and a tremendous increase in the amount of money per sale with amazing organic growth of 9.9% and 12% organic growth specifically for its tool group. That's just stunning.
But not as shocking as the comparable-sales numbers that Domino's gave you. Remember, this is a company that primarily sells pizza. Each store sold 14% more pizza than a year ago -- that's right, 14%. I was looking for a 7% comparable number, which would have been pretty darned huge. But 14%? That's the way the old Chipotle (CMG) used to deliver numbers. That's the fastest growth by far in the category.
I don't even know where to begin with Skechers, the surprise is so gigantic. Domestic shoe stores gave you an 8.3% comparable-sales number, international gave you 14.8%. Holy cow. The wholesale business, hugely important, gave you double-digit growth. The operating margin increased 270 basis points. That means they are making a ton more per shoe than they did last year. I don't know if I can recall any apparel company making that much more money per product than it did the previous year.
What do earnings and sales surprises do?
Three things: First, they allow the analyst machine to go to work raising estimates for both sales and earnings. That combination always gets a stock going.
Second, they maintain the momentum of the chart. All three had terrific breakout charts, and that means the world to those who are trying to catch a tiger by the tail.
Finally, they get the shorts to cover. Let's spend some time on this last one. There's never been a really serious bet against Snap-On Tools. It's way too quiet a company to attract a lot of hedge funds to bet against it.
But Domino's and Skechers? These are short-selling magnets. Domino's was long considered to be a sleepy company before its breakthrough campaign to showcase how the pizza simply didn't taste good, and management, led by CEO Pat Doyle, knew it. The changes were visible because of an amazing campaign that compared their old pizza's taste negatively to cardboard! That got people's attention, including my own. The new pizza tastes outstanding.
But somehow the smart hedge fund guys don't get this. They have thought this one's just an accident waiting, endlessly, to happen. It lapped difficult comparisons. The category's not growing that fast. Expectations had gotten too high. Plus, the stock was so extended going into the quarter that it almost seemed due to collapse on its own weight.
That's why I first thought it was a typo or I had read the release wrong when I saw a 14% gain in comparable stores. I was looking for 7%. Actually, I was praying for 7%, given how the stock had run so much making it so vulnerable to disappointment and I've been such a strong supporter of it.
When you see a gain this big, you know you had plenty of short-side bettors who have no choice but to cover. They've been beaten and they have to buy high just like an owner would have to sell low if the company really did a poor job on the quarter.
Then there's Skechers, which is in a short-selling category all by itself. I have loved Skechers forever, having been drawn personally to the comfort level of the shoes and the comfort I feel with chairman/CEO/founder Robert Greenberg and David Weinberg, the chief operating and chief financial officer, two masters of the shoe industry who know how to manufacture and sell what people really want, a comfortable darned shoe.
Others, however, are not so enamored of the stock. There are research outfits galore who have tried to call a top in this stock wary of an industry that has frequently produced flame-outs, companies that turn out to be nothing but fads that got hot and then turned cold. You have seen this play out again and again as a boutique research firm would give credence to a weak direct sales number or a West Coast port slowdown, causing a momentary but scary swoon to the stock. But nothing slowed down this quarter. That's how you get such a huge single-day gain.
Third necessary ingredient to get a stock moving higher in this market? How about tremendous innovation. You could easily argue that all three of these are actually technology stocks in disguise. Snap-On just keeps creating tool after tool after tool to meet its customers' needs. Lots of their innovation comes from listening to their clients and solving their problems for better diagnostics or superior, more durable hand tools. It's a factory of innovation.
Domino's is always coming up with new dishes that whet the appetite. Notice you don't hear this company called Domino's Pizza anymore. It's just Domino's, a testament to all the new entries the company offers.
But more important, Domino's is a huge technology innovator. It was the first to embrace technology that would make for easy ordering. The first to embrace your mobile phone as an ordering device. The first to truly embrace social media like Facebook (FB) to win over customers and make the process simple. The first to allow payments made online so you don't have to deal with cash when the delivery person shows up at your door. Including the tip. That means mistake-free ordering and fewer people needed to answer the phone at the store.
Skechers is an innovation machine. New shoes for all sorts of occasions and all kinds of ages. It's a laboratory. An inventor of new shoes. And it's an amazing embracer of social media to pitch its goods, including the social work, so to speak, of the incredibly popular singer Demi Lovato. With Skechers, it's not just shoe biz, it's show biz.
Fourth and final clue of what this market wants? How about no excuses? All three of these companies have large businesses and franchises overseas. They are all saddled with the same strong dollar that so many other companies have been hamstrung by. But go listen to their conference calls. Demand for their products overseas was so great that they didn't skip a beat. The moral of the story? You have the right goods, the strong dollar can't derail you. That in itself may be the most amazing thing about these three companies.
So you get a guide up in both sales and earnings, you get a true earnings surprise, you get amazing innovation and robust sales overseas despite the strong dollar, then you've got a winning stock. Snap-On, Domino's and Skechers are winners and will remain winners as long as these management teams stay intact.