Discretionary

  • 15 Jan
    Don’t fall for the “dead cat bounce”

    Don’t fall for the “dead cat bounce”

    mkt001.php?a=IDpost01142019”>

    The longer a market correction lasts, or extends into a prolonged bear market, the more we see stocks drop to incredibly low level versus their historical highs. The market continues to exhibit quite a bit of uncertainty, not only over global growth forecasts, but also whether the global economic slowdown, along with the deleterious effect of tariffs and trade tensions is finally starting to catch up in the United States. While it may not be a given that the market is going to turn bearish, I think that continued uncertainty is going to keep a lid on broad market upside as we move further into the year. More →

  • 04 Jan
    Is BBBY a bargain, or just cheap?

    Is BBBY a bargain, or just cheap?

    Warren Buffett is justifiably considered as one of the most successful investors of all time. The methods he employs to identify long-term investment opportunities have been thoroughly documented, by himself and others, and copied by value-oriented investors for decades. The annual reports he writes for Berkshire Hathaway are considered required reading in many investor quarters for the insights they give about his investing approach and its use under current market conditions, and market media outlets pay close attention to any opinions he renders about the economy or the market in general. More →

  • 01 Jan
    VFC is down 28% from its peak – but that doesn’t make it a good buy yet

    VFC is down 28% from its peak – but that doesn’t make it a good buy yet

    Moving into a new year means new resolutions, new goals, and excitement for new opportunities that lie ahead. The end of 2018 marked the first year in a decade that the stock market closed in negative territory. The S&P 500’s decline for the entire year was a little more than -5%, which might not seem like too much of a big deal by itself; but the real story is the fact that after hitting its most recent all-time high in September, the market tested legitimate bear market territory before rallying back to close the year down 13% from that peak. More →

  • 31 Dec
    YUM has bucked the entire market – is it a good investment right now?

    YUM has bucked the entire market – is it a good investment right now?

    When the stock market struggles, the tendency for most investors is to start looking for “safe haven” investments. That often means getting out of stocks and moving your money into less volatile options like bonds or very short-term, interest-bearing instruments like Treasury bills, money markets or Certificates of Deposit. Some investors will be a bit more daring by keeping their toes in the market, but by looking for stocks that they think should hold up reasonably well even if the economy begins to weaken or move into a recessionary period. There are always stocks that buck the broader market’s trend; these are the exceptions to the rule, but the simple fact of their rarity is something that makes them worth paying attention to. More →

  • 17 Dec
    Is WHR a good buy right now?

    Is WHR a good buy right now?

    With the stock market pushing down to test levels near its lowest points from earlier this year, a lot of investors are on edge right now. The market is back into correction territory, and has pushed below its more recent low point around the end of October. A continued decline will not only steepen the severity of the correction, but also increase speculation, uncertainty and risk that the market will finally, after a practically uninterrupted bullish run of more than nine years, move into legitimate bear market territory. More →

  • 13 Dec
    Is LOW cheap enough yet?

    Is LOW cheap enough yet?

    Over the course of this last quarter of the calendar year, one of the areas of the market that has come under the most pressure is the Consumer Discretionary sector. From April until September, this sector was one of the market leaders, as a generally healthy economy drove retail stocks across a range of industries like Kohl’s (KSS), Target Stores (TGT), Home Depot (HD), and Lowe’s Companies, Inc. (LOW) to all-time high levels; but as anxiety about global tariffs combined with questions about whether the economy was finally starting to reach a peak, this sector dropped well into correction territory and is down a little over 12% since the beginning of September.

    Home improvement stocks like HD and LOW seem to be an interesting economic barometer, especially as it relates to consumer-level impact. A healthy economy generally means increasing home ownership, both for new homes as well as existing, older homes. That is usually a good thing for this industry, since homeowners naturally have to spend money to maintain their homes. Another element that plays a role, of course is interest rates.  Low rates not only motivate higher borrowing for mortgages, but also spur increased home improvement sales as consumers spend and borrow money to upgrade and improve existing homes.

    The fact rates have been increasing isn’t a positive for this industry, and in fact is one of the things that I believe have played a role in pushing HD and LOW into bear market territory over the last three months; but recent economic data seems to be giving the market reason to believe that the Fed may slow the pace of interest rate increases. On a historical basis, rates remain relative modest, which means a slower pace, or even a pause in rates could give this industry a boost in 2019. LOW is an interesting company, in the midst of a corporate transformation, with a new management team that is mapping out a new strategy that includes selling non-core businesses, lowering costs and improved store execution. They are down more than 20% over the quarter, which means that the stock is underperforming versus the broader sector and is in bear market territory. There are some interesting fundamental qualities that I think make LOW worth watching; but I’m not sure the long-term outlook for the stock is quite as positive as I would like to see.



    Fundamental and Value Profile

    Lowe’s Companies, Inc. (Lowe’s) is a home improvement company. The Company operates approximately 2,370 home improvement and hardware stores. The Company offers a range of products for maintenance, repair, remodeling and decorating. The Company offers home improvement products in categories, including Lumber and Building Materials; Tools and Hardware; Appliances; Fashion Fixtures; Rough Plumbing and Electrical; Lawn and Garden; Seasonal and Outdoor Living; Paint; Flooring; Millwork, and Kitchens. The Company also supports the communities that focus on K-12 public education and community improvement projects. The Company serves its customers in the United States, Canada and Mexico. LOW’s current market cap is $75.3 billion.

    • Earnings and Sales Growth: Over the last twelve months, earnings declined about -1%, while sales grew almost 4%. The last quarter didn’t improve the earnings picture, since earnings declined almost -50%, while sales dropped close to -17%. The company operates with a very narrow margin profile that seems to be getting even narrower; Net Income versus Revenues over both the past year was 5.18%, but decline in the most recent quarter at about 3.6%.
    • Free Cash Flow: LOW’s free cash flow is one of most impressive aspects of their fundamental profile, at $5.3 billion. That translates to a Free Cash Flow Yield of 7.2%. Another positive is the fact Free Cash Flow has increased significantly since the beginning of the year, when it was about $4 billion.
    • Debt to Equity: LOW has a debt/equity ratio of 2.68 and makes them one of the most highly leveraged companies in their industry. While their balance sheet indicates operating profits are sufficient to service their debt, liquidity is a question mark; cash is a little over $1.8 billion while long-term debt is almost $14.5 billion.
    • Dividend: LOW pays an annual dividend of $1.92 per share, which translates to a yield of about 2.1%.
    • Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but one of the simplest methods that I like uses the stock’s Book Value, which for LOW is only $6.72, and which translates to a Price/Book ratio of 13.76 at the stock’s current price. Their historical average Price/Book ratio is 10.36, which means that even with the stock down 20% since September, it remains almost 25% overvalued right now. The fact is that based on Price/Book ratio, the stock can’t really be considered a good value until it drops to about $55. The last time the stock was in that price range was October of 2014.



    Technical Profile

    Here’s a look at the stock’s latest technical chart.

     

    • Current Price Action/Trends and Pivots: LOW isn’t far from the 52-week lows it established earlier this year in the $81 to $83 price range. The momentum of the stock’s downward trend right now means that the stock would have to break above resistance at $95 to mark any kind of consolidation range right now, with a break above $100 a good technical reference for an actual bullish trend reversal. If the stock breaks below its current pivot support around $86, look for strong consolidation in the $81 to $83 range. A drop below that level would mean the downward trend will likely continue for the foreseeable future, with the next most likely support level around $75. 
    • Near-term Keys: A push above $95 could set up an interesting bullish swing trade using call options, with a near-term target price at around $100. If the stock breaks its current support, you might consider shorting the stock or buying put options with an eye on the stock’s 52-week low around $81 as an exit point for that trade. The fact is that the stock’s value proposition right now just isn’t interesting enough to justify any kind of long-term position on this company. They are interesting potential turnaround story, it is true; but I would prefer to wait to see new management’s strategy paying off in the form of improving general fundamental strength, lower debt levels, and improving Book Value.


  • 07 Dec
    Is TGT a good value play for the holidays?

    Is TGT a good value play for the holidays?

    The numbers from what has come to be accepted as the official beginning of the holiday are in. This year’s Black Friday and Cyber Monday sales figures hit all-time records despite an overall decrease in foot traffic at brick and mortar stores. Online sales on Black Friday actually began on Thanksgiving Day, and by the end of Friday had reached a nearly 24% increase over the previous year at $6.22 billion. Cyber Monday was even bigger, with a total of $7.9 billion. In all, the numbers seem to point to a healthy holiday shopping season. More →

  • 23 Nov
    Happy Black Friday! Which stock is a better value right now – TGT or WMT?

    Happy Black Friday! Which stock is a better value right now – TGT or WMT?

    It’s an annual thing – the day after Thanksgiving marks the official start of the holiday shopping season. Anxious to get a jump on the best deals of the season, shoppers line up outside stores all over the country. It also marks a point in the year when the stock market starts to pay even closer attention to the retail sector than normal. More →

  • 02 Nov
    NTRI surged 9% yesterday after beating earnings – should you jump on board?

    NTRI surged 9% yesterday after beating earnings – should you jump on board?

    So far this week stock market has managed to bounce off of support and rally pretty strongly after touching its lowest point since May on Monday. In the last three days the S&P 500 has rallied about 5% higher, using strong earnings reports as a primary driver, along with optimistic comments from President Trump about the chances of reaching a compromise on trade with China even as his administration has started to plan tariffs on all remaining Chinese imports if talks fail later this month. More →

  • 01 Nov
    Does BBBY’s low Price to Book Value point to big value – or big risk?

    Does BBBY’s low Price to Book Value point to big value – or big risk?

    Some of the first important metrics I learned about when I started studying fundamental and value analysis years ago revolved around identifying how much a stock should be worth versus what it’s current trading price really is. At its core, the principle is simple enough; if the stock is trading lower than what the value of the underlying business is, what you may be looking at is a terrific bargain opportunity. More →

1 2 3