Truth is, nobody in this world is going to give you a damn thing. You want something bad enough then go out there and take it. In applying this line of reasoning to a stock market that never wants to stay down for any prolonged period (last Thursday's selloff already recouped), you really have to know what to be looking for to either become a contrarian bear or ride with the fast-moving bull herd. I am still gathering notes for the holiday season, and to follow are the views I shared with a few of my team members.
The holidays are, for all intents and purposes, here. In fact, they have been inside of Costco (COST) since the summer. So what is the one thing that you the investor needs know about selecting a consumer-related stock into year's end? That one thing: massive product differentiation. Let the teen apparel players compete for the same customer with rising promotions that destroy their earnings. Be smart by realizing a Nike (NKE) has arrived to market ready to take the fight back to Under Armour (UA) with a new product called HyperWarm. With that fight comes a higher-than-normal chance to grab profitable market share (defined by full price sales). Here is some color on HyperWarm.
Overall, I continue to be cautious on the holiday season's eventual outcome, focusing on the amount spent per transaction, which is influenced by the level of discounting and volume. Within this content, I believe there are still ways to make money provided you identify the correct thesis to latch onto. Here is a bit more color on Nike, a short-term, buy-rated name for my firm, Belus Capital Advisors:
Are Nike shares cheap from historical and relative valuation perspectives? Nope. But I am placing a strong emphasis on owning quality this holiday season given the widespread, and juiced up, discounting I expect in the retail sector. I believe that discounting will weigh big-time on the earnings results of retailers such as teen apparel, which are companies not offering a ton of product differentiation and whom are competing for the same customer. On the other hand, Nike not only has lean inventory levels and a favorable recent earnings report under its belt, but a host of new products at key vendors (think: Dick's Sporting Goods (DKS)) that could be market share gainers from Under Armour. Superior product globally is the way to play, in my view. Also emboldening the case is that the stock is outperforming the benchmarks in the past month; the liquidity driven rally is fueling more money into top names such as Nike.
The next catalyst I see: the company's December earnings report.
Chart of the Day
If you recall, emerging-market stocks were destroyed over the summer given Ben Bernanke's verbal misfire regarding the timing of the QE taper. I find it to be a slight red flag that as the 10-year note has crept towards 2.8%, which is a freak-out zone for the market, emerging-market stocks -- as seen in the iShares MSCI Emerging Markets (EEM) chat below -- have begun to weaken. Remember that in the summer, the EEM led the decline in the S&P 500. Think this isn't conclusive enough evidence to lock in gains relative to exuberant broader markets? Fair, but spy the weak price action in Coca-Cola (KO) and PepsiCo (PEP), two companies with meaningful emerging-market sales exposure.
Source: Yahoo! Finance
I had a temporary reprieve from a few commitments yesterday, so I returned to market whispering. Saw these four:
- Aeropostale (ARO): Reiterate, expect bad news shortly. Sector laggard on Tuesday (as previewed on Monday).
- Lululemon (LULU): Mildly concerned with relative weakness amid clear, lingering issues on product manufacturing. Note that Lululemon relies on five key suppliers to secure 60% of its merchandise.
- Nordstrom (JWN): the stock is about $0.70 from a new 52-week high. Rich people are spending this holiday season.
- FedEx (FDX), UPS (UPS), CSX (CSX) and Kansas City Southern (KSU): Hovering near 52-week highs, which is odd considering the reads on the consumer and impending retail EPS earnings warnings. Who is right: market, data or reality?