Today, we saw a big pop in retail stocks. I think that people are really starting to believe that Holiday sales really will be better than expected. In advance of that, we are seeing retail names ramp into the shopping this weekend. Chuck Grom, the analyst at JP Morgan Chase on Fast Money tonight, talked about getting long department stores into Black Friday and then offset it with a discount retailer. We are actually taking on half that trade and bought Grom's name: Macy's (ticker M). Macy's really has tremendous Star Power with the likes of Jessica Simpson, P. Diddy, 50 Cent, and others. I think this ultimately drives traffic into the stores and that should translate into sales this Holiday Season.
Other names that we think are really attractive are True Religion (TRLG) which has nearly $100 million in cash and zero debt; all with double digit margins. Even more, we like Buckle (BKE) because it offers a 2.9% dividend, also with double digit margins. The Buckle does have over $100 million in cash; it's actually $163 million in cash and still no debt. These retailers are very trendy and offer clothes that young people really want to wear. I don't know about you, but I rarely buy new clothes. Who does? Young people buy clothes, because they are worried about how they look (especially when it comes to the opposite sex) so they will continue to wear "what's hot". The other end of retail that should work is the higher end, because those people actually have money to spend...which is what keeps us from buying more clothes! So, you should be able to own BKE and TRLG, as well as a higher end name.
We don't know high end like we know the other segments. And there is no one more popular and knowledgeable than Patty Edwards from Storehouse Partners. In our conversation tonight with Patty we talked about the high end of retail and she felt very comfortable with a couple names. J. Crew was her number one name and she said she is very comfortable owning that name. We also talked for a while concerning the Diamond Market. We took a look at the industry from the bottom where the Diamonds are pulled out of the ground (Harry Winston Diamond Corp. (HWD)) all the way to Tiffany and Company and Blue Nile. Patty said she has personally been able to visit the facilities at Blue Nile and they are a fabulous company that is extremely well run. She said that their follow-up after a purchase is top notch and their customer service is top of the market. We know that companies that provide service to their customers like Chipolte and Panera Bread (which have run up huge). Blue Nile offers everything from a pair of earrings for $38 to a piece of jewelry that cost over $100,000; you can have both at Blue Nile (NILE). Her other name, TIF, is a testament to the high end retailer. She did have concerns about HWD, and we admit that we have them as well. But, we are value investors and $2 downside and $30 upside is a great risk reward for us. They have had a string of rough quarters and are not projected to be profitable until another 3 quarters of losses. So, it will take a surprise turnaround for this company to be profitable. Our time horizon on this is in years, so know that up front. A search for news on HWD also brought MOV out, but this company may just need to be avoided. In fact, Jim Cramer told you to sell it a day or two ago on Mad Money. But, unlike many of the American Companies, the Chinese-based Fuqi International (FUQI)has consistently grown earnings and is projected for each quarter next year to beat those numbers year over year. Plus, their Q4 is seasonable strong each year (thanks to Holiday sales). Of all the Jewelry names, FUQI seems the most dependable, HWD is our idea of a longer shot value play, and Blue Nile (NILE) is a way to play both the rise in online transactions and the return of the consumer to jewelry purchases. You may want to avoid TIF and MOV. We will not have to wait long to see how TIF is doing.
Jim Cramer did a fine job tonight on Mad Money, bringing in the CEO of Phillips-Van Heusen Corp (PVH). Let it be known that they have apparel lines that apparel in everything from Walmart* to Nordstroms. They have outlet stores, are in department stores, and across many lower end retailers. The number show that about 45% of all shirts sold are from PVH and about 50-55% of the neck ware. Those are amazing market shares and can be found in their Calvin Klein, DKNY, IZOD, Donald J. Trump Signature Collection, Kenneth Cole, and (our favorite) Sean Jean. With this lineup, you really get all segments of retail and if you want a retail play...this is good one with $7.16/share in cash. They have already said that if the Q4 goes the way they see it going right now, the'll see meaningful improvement in their margins.
So, the moral of this story, when it comes to retail, you have to own the best. There is no room to own a company that is debt laden, nor one that can't execute. I did have a conversation with a trader today that pointed out that I shouldn't hate Walmart* as much as I do because it has a fabulous online business just like Amazon does. I have been endlessly negative on Walmart* because of it's brick and mortar operations not being able to grow. But, last night, Jim Cramer pointed out that Amazon and other online transactions are only 3% of total retail transactions right now and that in the future, it could be higher, much higher, closer to 30% (not just 3% anymore). So, I'm going to have to take Walmart* out of my Sell Block and tell you that it just may be safe to own Walmart* here on that growth in online retail transactions and the fact that they continue to innovate with their financial services division. They are good executors of their business and that should benefit shareholders going forward.
So, do your shopping for retail stocks before the Black Friday numbers come out and ride it into Christmas. But, we want to let you know that when those numbers come in...if you see your stocks rip...don't be afraid to take some of those profits off the table. We are letting you know now, because we may not get around to telling you when we actually move it off the books. If we get 10% moves in any particular names, that's a great opportunity to pull the rip cord and take home those profits. Heck, then you can go shop at your favorite retail store!
Tuesday, November 24, 2009
Tuesday, November 10, 2009
Playing a Rising Middle Class
Why does Kraft want to own Cadbury? They want to own them to benefit from the rise of the middle class. I know what you're thinking...that's crazy; and how are the two connected? Chocolate is the secret. If you read James Altutcher's book, The Forever Portfolio, he talks about the rising middle class in India, China, Brazil, and elsewhere. Guess what people with money do that people without it don't do? They eat, and they eat well...certainly better than rice and potatoes. People that struggle with money often have to skimp on eating better. So, a rising middle class means that people will eat chocolate; and to make chocolate you need sugar.
Now that we've taken you through the thesis, we're not going to recommend you pick up Kraft...we don't even know if their bid for Cadbury will be successful. But we will recommend Imperial Sugar Company (IPSU). They had an explosion at a their plant in Port Wentworth, Georgia that took nearly half their capacity offline in February of 2008. With this company about to ramp up production, we think this is a good way to play both the rising cost of sugar and the rise of the middle class. We think that the recent rise in sugar prices is a function of a rising middle class that is eating more sugary foods because they can now afford them and we want to profit from it. We also like DBA, the Powershares Agricultural Soft Goods ETF as a way to play rising commodity costs over the next decade or so. Imperial even has a dividend. It's not much, but getting paid something is better than getting paid nothing.
Let us know what you think of this idea and others by leaving a comment on the blog!
Now that we've taken you through the thesis, we're not going to recommend you pick up Kraft...we don't even know if their bid for Cadbury will be successful. But we will recommend Imperial Sugar Company (IPSU). They had an explosion at a their plant in Port Wentworth, Georgia that took nearly half their capacity offline in February of 2008. With this company about to ramp up production, we think this is a good way to play both the rising cost of sugar and the rise of the middle class. We think that the recent rise in sugar prices is a function of a rising middle class that is eating more sugary foods because they can now afford them and we want to profit from it. We also like DBA, the Powershares Agricultural Soft Goods ETF as a way to play rising commodity costs over the next decade or so. Imperial even has a dividend. It's not much, but getting paid something is better than getting paid nothing.
Let us know what you think of this idea and others by leaving a comment on the blog!
Saturday, November 7, 2009
Don't Forget to Take Profits
We would be remiss if we didn't remind you to take profits. Now, we could just remind you that you need to be listening to our Lunch @ the Markets Segments (You can listen to them here: http://linkth.at/vl) and leave you in the dark, but we'll let you in on our market discipline (not that we are the only one's in this school of thought).
When the markets roar, no doubt you will make money if you're long good stocks. I guess you could lose money if you owned $RIMM (Research in Motion) or $MYGN (if you bought it @ $30 because you listed to us late after we told you to buy it under $25). But, for most people, especially if you've been in the market since March, or even April, or May, or June, and especially July (because so much of it was spent in the red). Then you have made money. Please, don't let all that ride. Do not be a pig.
When we were in California, we had one of the advisers we work with come back and tell us a story about a client of theirs who had refused to sell $GE @ $17 and $WFC @ $31. When confronted with the brutal facts that $GE fell $3/share and $WFC fell $4/share; they said that the companies were good solid companies and they'll come back. That's true, the probably will, and in 5 years those prices might sound low. But that is not the case right now, and the bottom line is. If you're up big, even if you like the stock, you have to sell when you're up...especially if you're up big. Why not take some off the top and then, if you like it so much, buy it back after it pulls back. Nearly every stock pulls back. People didn't think Goldman Sachs ($GS) would pull back...and now you can pick it up for $171.90! That's down $20/share from the 52-week high!
Look, the bottom line: "You cannot own stocks forever." That's one of our favorite quotes from the advisor we talked with in CA. Can you imagine if you bought $GE @ $8 in the early 1990s and watch it go up over $40/share...and then DIDN'T sell it and watched it fall all the way back down to $8!?!? Don't put yourself on that type of roller coaster, and don't own stocks forever. Very few companies should be owned forever. When you have big gains...take some off at the top, or on the way up (because know one knows exactly where the top...or the bottom is for that matter). You'll have plenty of cash on hand for when the market has a rainy day and dumps a stock you like big time. That will be your cue to come in and buy. We've had a lot of fun with $STJ down 10% in one day, $TRLG down 20% in one day. You'll have to go listen to our Lunch @ the Market Segments (http://linkth.at/vl) for all our research. We work hard, but we're not going to make it that easy for you every time. :-)
We'll tell you the bottom line, because that's the way we like to shoot it, nice and straight: ALWAYS keep cash in your portfolio for rainy days, try to avoid ever buying on an up day, and please don't sell on a down day. Instead, when markets are up big...look for things you can sell. When they're down big, look for things to buy. To avoid being emotional, keep a shopping list around for these days and keep sell price targets. Heck, go ahead and enter in the limit orders to sell ahead of time so that you take the emotions out. Know what you own, and always do your homework!
When the markets roar, no doubt you will make money if you're long good stocks. I guess you could lose money if you owned $RIMM (Research in Motion) or $MYGN (if you bought it @ $30 because you listed to us late after we told you to buy it under $25). But, for most people, especially if you've been in the market since March, or even April, or May, or June, and especially July (because so much of it was spent in the red). Then you have made money. Please, don't let all that ride. Do not be a pig.
When we were in California, we had one of the advisers we work with come back and tell us a story about a client of theirs who had refused to sell $GE @ $17 and $WFC @ $31. When confronted with the brutal facts that $GE fell $3/share and $WFC fell $4/share; they said that the companies were good solid companies and they'll come back. That's true, the probably will, and in 5 years those prices might sound low. But that is not the case right now, and the bottom line is. If you're up big, even if you like the stock, you have to sell when you're up...especially if you're up big. Why not take some off the top and then, if you like it so much, buy it back after it pulls back. Nearly every stock pulls back. People didn't think Goldman Sachs ($GS) would pull back...and now you can pick it up for $171.90! That's down $20/share from the 52-week high!
Look, the bottom line: "You cannot own stocks forever." That's one of our favorite quotes from the advisor we talked with in CA. Can you imagine if you bought $GE @ $8 in the early 1990s and watch it go up over $40/share...and then DIDN'T sell it and watched it fall all the way back down to $8!?!? Don't put yourself on that type of roller coaster, and don't own stocks forever. Very few companies should be owned forever. When you have big gains...take some off at the top, or on the way up (because know one knows exactly where the top...or the bottom is for that matter). You'll have plenty of cash on hand for when the market has a rainy day and dumps a stock you like big time. That will be your cue to come in and buy. We've had a lot of fun with $STJ down 10% in one day, $TRLG down 20% in one day. You'll have to go listen to our Lunch @ the Market Segments (http://linkth.at/vl) for all our research. We work hard, but we're not going to make it that easy for you every time. :-)
We'll tell you the bottom line, because that's the way we like to shoot it, nice and straight: ALWAYS keep cash in your portfolio for rainy days, try to avoid ever buying on an up day, and please don't sell on a down day. Instead, when markets are up big...look for things you can sell. When they're down big, look for things to buy. To avoid being emotional, keep a shopping list around for these days and keep sell price targets. Heck, go ahead and enter in the limit orders to sell ahead of time so that you take the emotions out. Know what you own, and always do your homework!
Going According To Plan
So far, everything has gone according to our plan that we've had for the last 6 months. If you've had a chance to catch our Taking the Market Temperature and Lunch @ the Market Segments (listen to all the posts here: http://tweetmic.com/p/ox22alezwbd), then you know we have called this market almost step by step. We were a little thrown off when the DOW jumped above 10,000 on the 2nd day of earnings and then failed twice at 10,000. Our goal was the 2nd week of November for the DOW to find itself above 10,000...and on Monday, we should open there. Defending it may have become a tougher job than we first thought though.
Unemployment has not been a surprise. I know Meredith Whitney was on Squawk Box months ago and said 12-13% was not out of the question. We'll take 12%, but I don't know that we'll get all the way to 13%. Honestly, it's a relief that we've printed over 10% unemployment. Lets face it, everyone has thought we were there at 10% for a long time now...we were just all waiting to see the number printed. I think the fact that the market not only held it's gains in the face of that number, but we actually finished in the green...means that it really was already priced in.
We have heard MASSIVE amounts of Bullishness from CEOs like Cisco. People have called a bottom in their industries. The banks and tech have pulled back, leaving more room to run above 10,000 in the DOW. Frankly, owning Wells Fargo, JP Morgan Chase, and Goldman Sachs here makes a ton more sense than owning them at much higher levels before earnings season. We have heard over and over that normalized earnings are a joke for the banks, that real estate is horrible, no good, and very bad. I hate to point out...but the bank reserves are massive and the bank failures we're seeing now need to happen to weed out unhealthy banks. Tell me what happens to bank stocks when they start talking about net interest margins and loan growth (normalized earnings)? They are going to soar. You just wait until Jamie Dimon puts his dividend back and Wells Fargo and Bank of America return the TARP (which they will, probably in a move that will surprise everyone but those with insider information; which you will probably see play out in options). Honestly, does any one have the Vegas Line on Bank of America or Citigroup going under? For gosh sakes, AIG is profitable and look at The Hartford and Travelers...they are soaring. Don't confuse my realistic attitude with outright exuberance or that I'm sounding the all clear or that things are great. But all the negativity is a bit much. As I think about it though, all the negativity is why we've been able to keep this rally alive. As the Bears finally realize that the world will not end, and that people can make money in stocks because truly great companies will find a way to be profitable. We need someone to sell my stock to after we make all that money.
That may be the moral of my story. The terrible companies, the really bad ones that no one should own...most of them already trade at that price and you should be able to pick them out because they're low single digit stocks, or worse, less than a single dollar.
Unemployment has not been a surprise. I know Meredith Whitney was on Squawk Box months ago and said 12-13% was not out of the question. We'll take 12%, but I don't know that we'll get all the way to 13%. Honestly, it's a relief that we've printed over 10% unemployment. Lets face it, everyone has thought we were there at 10% for a long time now...we were just all waiting to see the number printed. I think the fact that the market not only held it's gains in the face of that number, but we actually finished in the green...means that it really was already priced in.
We have heard MASSIVE amounts of Bullishness from CEOs like Cisco. People have called a bottom in their industries. The banks and tech have pulled back, leaving more room to run above 10,000 in the DOW. Frankly, owning Wells Fargo, JP Morgan Chase, and Goldman Sachs here makes a ton more sense than owning them at much higher levels before earnings season. We have heard over and over that normalized earnings are a joke for the banks, that real estate is horrible, no good, and very bad. I hate to point out...but the bank reserves are massive and the bank failures we're seeing now need to happen to weed out unhealthy banks. Tell me what happens to bank stocks when they start talking about net interest margins and loan growth (normalized earnings)? They are going to soar. You just wait until Jamie Dimon puts his dividend back and Wells Fargo and Bank of America return the TARP (which they will, probably in a move that will surprise everyone but those with insider information; which you will probably see play out in options). Honestly, does any one have the Vegas Line on Bank of America or Citigroup going under? For gosh sakes, AIG is profitable and look at The Hartford and Travelers...they are soaring. Don't confuse my realistic attitude with outright exuberance or that I'm sounding the all clear or that things are great. But all the negativity is a bit much. As I think about it though, all the negativity is why we've been able to keep this rally alive. As the Bears finally realize that the world will not end, and that people can make money in stocks because truly great companies will find a way to be profitable. We need someone to sell my stock to after we make all that money.
That may be the moral of my story. The terrible companies, the really bad ones that no one should own...most of them already trade at that price and you should be able to pick them out because they're low single digit stocks, or worse, less than a single dollar.
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