The perfect ones just cost too much. The wounded ones don't get better. And the ones on the fence seem like they are about to fall to the wrong side.
I am talking about the retail and restaurant group. This is a moment where companies like Dave & Busters (PLAY) -- the eat, drink and be merry while playing and watching games restaurateur -- is putting up amazing numbers, but at 29x earnings that's a full price tag for its almost 9% comparable store growth.
Contrast that with Wal-Mart (WMT). It may not have any growth to speak of, but you can get it at 13x earnings.
The first has to have everything continue to go right if it isn't going to get obliterated, and the second can't get it right - so how in the world does it go up?
Then there is Costco (COST), where you have terrific comp numbers, but a series of one-time-only issues, which added up to a total clobbering earlier this week.
I see this dichotomy everywhere. Do you want to own Macy's (M) at $38? It is so cheap versus where it was during the summer, but there is no catalyst, here, and it is going to be 60 degrees on a key weekend before Christmas. Here's a stock that is selling at 8 next year's earnings. Only 8x earnings!
But you know what that means? It means it isn't going to come anywhere near making those estimates. This extremely low-multiple situation is an example of a stock that might turn out to be more expensive than just about any retailer, even as it is sitting so low as to be astonishing.
In other words, the cheapest stock might be the most expensive.
It's the same thing in restaurants. You have this incredible anomaly where the most expensive restaurant stock is Chipotle (CMG) at 36x earnings, even as it is going to have a double-digit drop in comps this quarter. That's a recipe for disaster. But it is the most telegraphed short in the world. It is so telegraphed that even as we were hearing of another E.coli outbreak in Seattle and increased sickness at Boston College -- 141 have come down with the norovirus after visiting a nearby Chipotle -- the afterglow of a perfect appearance on the Today Show yesterday morning by co-CEO Steve Ells kept the stock roaring higher.
I mean, honestly, does anyone really think they can analyze the stock of the heavily shorted Chipotle, with declining comps and slashed numbers, as it is soaring at this moment? Insane? Inane? Who knows anymore?
There are some restaurants we like for the Action Alerts PLUS portfolio, because of the lure of special situations. Panera (PNRA) is rolling out Panera 2.0 nationally throughout next year, and the numbers are so improved that we are waiving any worry over the price to earnings multiple. We keep thinking that the Qdoba division of Jack in the Box (JACK) is going to see some good sales from Chipotle's decline, but the company has said it hasn't happened yet. Could that be because millennials think of Chipotle as fresh and natural first and then as Mexican second? Or does it just take more outbreaks to realize that Qdoba tastes good, too?
No matter, that chain's too cheap.
But cheap is relative. I like that Yum! Brands (YUM) is splitting into a Chinese-based YUM and a rest of world YUM. However, the same-store sales for its KFC chain were disappointing in November - down 3% -- so who needs that? Perhaps only someone who just has to believe it will improve, there. Maybe that's a reasonable assumption. Maybe it's not.
Throughout all of this period, there is only one constant in this group: the big institutions love the turn at McDonald's (MCD). They like the 3% yield. They like the turn in earnings that suggest the 24x forward numbers may ultimately be much lower. They love the balance sheet. And they love the CEO, Steve Easterbrook, because he turned Europe around and he will do the same in the U.S. This stock has the most faith from investors -- even as it is up an astounding 25% for the year.
To me this is a group that defies rationality in the same way that the weather is defying rationality -- something that also has to be playing havoc with both Under Armour (UA) and Columbia Sportswear (COLM) earnings, in the same way that it did for Lululemon (LULU).
You have to make your peace with the perfect and the overpriced, and you have to avoid the values. It's the quintessential market that has become bifurcated into the loved and the hated -and the twain just refuse to meet.