I'm just speculating here, but Bill Cosby probably still thinks Jell-O pudding is a pretty tasty dessert years after collecting his last check as a spokesman. I no longer eat the stuff, but I am able to recall how it looked in a bowl: kind of mushy, but offering a cute jiggle if flicked. These day, that is basically it feels like in the portion of my brain devoted to all things investing. Maybe you can relate, too.
As I outlined Monday morning, the new week brought with it green-shoots investment themes and tidbits to jot down and watch for full-fledged germination. By the close of trading, there were additional areas of intrigue, if you will, that commanded my attention.
The problem is -- and this is where Jell-O pudding brain joins the discussion -- I am unsure if anything in the holiday-shortened week could be believed. Getting long this market requires at least an iota of something fundamentally positive on a company-specific level or near-term price action that suggests a positive development is not too off into the future. Do any of these fit the bill?
Market trims losses following a dour Institute for Supply Management manufacturing report, made so by a headline drop into contraction zone for the industry, and not the broader economy (yet). Last week I warned that we need to be mindful of macro releases jumping over the line between expansion and contraction. Many readings have been cooling month on month and surprising to the downside, so it may eventually be possible that the "grind" will have to be replaced by the "outright contraction," given how global developments are trending.
Certainly it was assuring to this generally bearish dude to land that macro line jump. However, the market's brush-off would normally interest me from the standpoint of stocks potentially being oversold. Again, weak-volume, holiday-shortened weeks may not be a reliable indicator that Friday's rally has sustainability.
Analysts seem to increasingly downgrade relative winners of the past couple months (such as Dollar Tree (DLTR)) and taking a shot in the dark on former highfliers that have underperformed (such as Abercrombie & Fitch (ANF)). Granted, this is a more imprecise indicator -- more along the lines of the "feel" to the market I often reference. But, in addition to this, the market remains unrelenting in its distaste for top-tier growth names such as Starbucks (SBUX), Lululemon (LULU), and Under Armour (UA). At the same time, it's been slightly quicker to heap praise on companies with very uncertain second-quarter and back-half results waiting in the wings -- say, in the industrials complex.
In any case, I badly want to partake in "silly week" on Wall Street today by highlighting the most random of happenings that appear during my daily market monitoring exercises. Heck, I will go so far as to sprinkle in a stock pick or two. So follow along below, and I wish you all a safe and happy July 4th with your friends and family!
Abercrombie & Fitch catches an upgrade even though it's probably sitting on a second-quarter sales miss and earnings warning. If you have any desire to tap the minds of teens and invest alongside a population subset with 20%-plus unemployment, go with American Eagle Outfitters (AEO).
The basic investment thesis includes: (1) best assortment from preppy teen retailers in the mall; (2) initial promotions are holding, indicating that price-value perception is aligned; (3) inventories are lean; (4) international exposure is limited; and (5) a new CEO is signaling he is apt to weed out unproductive stores and lines of business.
The consumer is pulling in their reins, you say? Fair point, but this isn't to the extent that folks are canceling gym memberships and curtailing vitamin purchases. Strong moves have continued in GNC (GNC), Vitamin Shoppe (VSI), Lifetime Fitness (LTM), and Town Sports International (CLUB). I remain keen on GNC, but I admit the valuation is starting to creep to a reassessment point.
If there were a dart-throw I'd make into second-quarter earnings season, it would be in transports --specifically, truckers. The name I have in mind is Swift (SWFT). The stock is trading on a forward price-to-earnings multiple that is half its long-term expected earnings growth rate, the company is delivering an improving balance sheet, it has lowered its cost of credit and it's experiencing positive pricing.
Industry thesis for Swift includes the following. First, its business is domestically skewed -- and, while that hasn't necessarily been rewarded by the market thus far, it should be as second-quarter earnings are released. Second, it's enjoying lower fuel costs and, finally, 2011's higher gas prices led to structural efficiency improvements.