Perhaps like never before, I am questioning what the public knows about finance. No matter if it's Susie Orman-type personal finance or David Tepper-related finance, there seems to be a knowledge gap between the "Pros" and the "Joes." Over the course of two weeks, look at the questions I have fielded (but not necessarily answered, because they were silly) from assorted venues:
- What is a Bitcoin? (Understandable because I really don't get this nonsense, either.)
- Should Wal-Mart (WMT) buy J.C. Penney (JCP) before it heads off into a full-stage turnaround? (This will never, I repeat, never, happen for at least 25 reasons I can't be bothered sharing right now.)
- Why is Disney (DIS) raising prices? (Fair question, except it should be somewhat obvious while walking through an under-development park with a newly released Magic Band on the left wrist. CEO Bob Eiger has seen it fit to stuff the development pipeline at Disney with massive global projects to leave his legacy firmly planted on the House of the Mouse.)
So, I want to take a step back and provide a range of simple analysis that even your granny (who doesn't realize her phone company, AT&T (T), is poised to own her TV provider, DirecTV (DTV)) would comprehend.
Bed Bath & Beyond (BBBY): Not a little worried, but very worried as to the health of this company's quarter. I'm Seeing inventory bulges throughout the store and aggressive clearance sales in high-margin departments (think bedding). Down 22% year to date, this stock is headed lower in the face of perpetual margin pressure and a blind executive team that is too arrogant to hold a question-and-answer session on an earnings call, even as zillions of dollars are blown on black hole-investments.
Dick's Sporting Goods (DKS): Remember what J.C. Penney, Macy's (M) and Under Armour (UA) told us? Athletic-wear is on fire. Although Dick's had a challenging quarter in golf equipment, the most important departments in the store (name-brand athletics) are performing strongly. Late in the quarter, demand by parents (kids sporting gear) also likely helped. I expect an earnings beat and a second-quarter guidance range that may be viewed as conservative by the Street.
PepsiCo (PEP): The company has quietly increased its R&D budget by a whopping 25% since 2011, and it's beginning to show in new products and technology. For example, PepsiCo's new fountain machine, called the Spire, is pretty dang awesome, and a noticeable improvement from the hulking piece of hardware released by rival Coca-Cola (KO) a couple of years ago.
Mixed Signals: I would be lying if I said the strong bid under the transports and zero bid under the homebuilders was something I fully understood. Sure, I wish I knew what the market is trying to say regarding the summer.
Source: Yahoo Finance
Urban Outfitters (URBN): Keep in mind the state of specialty retailing: Gross-margin gains are very tough to come by due to the rising dominance of fast fashion players such as H&M and Forever 21. If you are inclined to invest in this sector, it's imperative the target company is exiting stores to reduce its leverage point. As you can see in the chart below, Urban Outfitters' gross margin has gone basically nowhere during an economic recovery.
Source: Belus Capital Advisors