The new year is a mere hours away, and that means another earnings season looms large. With every reporting season, new stories on the market are cultivated and assessed by interested parties. I realize the seas seem very calm right now ¿ small company stocks are ripping, executives can do no wrong, and the Federal Reserve is God. But such a feel good environment is precisely why you have to continue to question and try to stay one step ahead of the punch-drunk crowd.
Here is what I am pondering behind the scenes.
Retailer Holiday Sales Reports: Jan. 9
Nobody else is going to do it for me, so I will: Yet again I predicted the holiday season for U.S. retailers. How do I continue to do this year after year? These are a few secrets and methods to use throughout January:
- Counting clothing on the racks of Macy's (M) and J.C. Penney (JCP) each week from Black Friday until Christmas, and then matching those findings to what execs and contacts are bantering about.
- What people bought, or didn't buy, at retailers on Thanksgiving Day openings are the new "tell" on the holiday season. This year, a good amount of folks were buying super-pricey TVs and smartwatches, while also shopping the trendier departments at major apparel retailers.
- Talk to as many shoppers as possible. You can do this by making up an alias organization you work for (Joe, Inc.), say you are researching for a project. Want to win? Have to think outside the box.
There is bit more science behind it, but boots on the ground research has always been integral to my attack plan. This year, I thought the holiday season began quite strong, counter to the "Debbie Downer" reports from various measurement agencies. That subsequently has proven to be correct, and the market knew it, too, given the increases in shares of Target (TGT), Wal-Mart (WMT) and other retailers not named RadioShack (RSH) or Sears (SHLD) in the past three months.
My view was emboldened this weekend during continued mall trips; I have not seen this many barren racks at mall anchor retailers since the rip-roaring spending times of 2005-2007. I believe serious out-of-stocks will be driving people back online in January to spend their gift cards, which bodes well for retailer holiday sales reports and guidance ranges for 2015. By keeping the consumer online, there is a better chance the sale will be of the full-price variety.
Coca-Cola vs. Pepsi
I believe the "you know what" is about to hit the fan at Coca-Cola (KO). Based on its current valuation relative to its historical valuation, the company is not a turnaround play as many hucksters will be pitching in the coming weeks. It's a stock to be avoided in favor of PepsiCo (PEP), or Clorox (CLX), which I mentioned a couple weeks ago (here is my interview with Clorox CEO Benno Dorer).
There are at least two, easy-to-understand fundamental problems at Coca-Cola that I don't see existing management acknowledging (and it will take time for new management to penetrate Coke's culture):
- A serious lack of innovative thought. The company is obsessed with introducing small can sizes for its cola, whereas Pepsi is poised to unleash a host of new products in 2015 (here is my interview with a Pepsi executive that shared those products).
- No acknowledgement by management that it needs to begin aggressively building a snacks division to own more of the aisles at supermarkets and discounters. I would love for Coca-Cola to overpay to buy Greek yogurt maker Chobani!
Small-Caps Have Gone Crazy
The Russell 2000 continues to climb. I would be on the lookout in January for comments from Fed officials that they are concerned with asset valuations. The Fed speaking circuit kicks back into gear the week of Jan. 6. Remember, the precedent for the Fed being worried on asset valuations in the past 12 months has been established.
In her mid-July testimony to Congress, Fed Chair Janet Yellen singled out biotechnology and social media stocks as having "stretched" valuations. What happened after that was ugly.
Source: Yahoo Finance