The Week Ahead: Waiting for more shoes
Posted
Nov 09 2008, 10:30 PM
by
Andrew Horowitz
Rating:
Upwards of 65% of the S&P 500 companies have reported thus far and we have been continuing to see disappointment after disappointment. Profits for the entire index are estimated to be 11.7% lower than last year. Yet many companies have only started to feel the effects of the significant drop in sales which accelerated through October.
This week will probably add to concerns about the near-term outlook as we continue to accept that this will not be a V-shaped recovery. Though this is the start of a much longer slowdown, there are some opportunities to profit as stocks will bounce around, even in the ugliest of market conditions. Here are a few ideas.
Monday, November 10
Betting on the market and losing a chunk of hard earned savings makes anyone cranky enough to rethink their risk tolerance and outlook. Negative sentiment from losses in all areas of the financial spectrum have created a nasty outlook for the Gaming Industry. Most casinos have seen their share price deteriorate as people are simply unwilling to throw more good money after bad. Ameristar Casinos has shareholders very nervous and they have been dumping shares at a rapid pace. Now off by more that 76% from its 52-week high, earnings are expected to come in at $.27 per share, down 20% for the same period last year. Even as sales have been expanding in the last few quarters, earnings have been slowing. Obviously it has taken a good deal more incentives to bring players to the tables and slot machines during this difficult environment. Across the industry, we have seen a global slowdown that has hit Wynn and Las Vegas Sands acutely. There is no particular reason that the trend will reverse in the near term and caution is the best advice when it comes to this sector and more specifically, this industry.
After the close, Starbucks will report what expects to be one of the weakest quarters that the company has seen in sometime. Analysts are predicting that we may see as much as a 40% reduction in earnings from the same period last year and the outlook could be also rather bleak. Let's face it, no matter how much we love the taste, the price for a simple cup of coffee at Starbucks could cost the same as a meal from the dollar menu at McDonalds. In a time of uncertainly where consumers are looking for bargains by turning to discounters like Wal-Mart and Costco, this may be a budget item that is able to be trimmed. Also weighing on the stock was the recent announcement of the resignation of the CFO, Pete Bocian.
Tuesday, November 11
What looked like a great opportunity for investors, turned out to be a disaster for anyone who held shares of Intrepid Potash much past its 2008 IPO. The entire agriculture industry has been under siege during the past few months as the massive deleveraging by hedge funds as they have been selling off many of the stocks that had been working well for them over the past few years. Potash and Mosaic are two more examples of how badly things can get for speculative growth plays in a bear market. Analysts still believe that there is quarterly earnings potential of $.73 on $143 billion for Intrepid Potash. Perhaps there will be a surprise here as we are seeing investors bid up shares into the report. Be careful if you are considering playing the long side as support under $16 is non existent.
Wednesday, November 12
Here is something that may warrant some attention. A small company that is involved with planning services for the transportation, facilities and environmental market appears to be a perfect fit for the Obama recovery plan. If we are to go the way of jobs growth through governmental sponsored infrastructure development, Aecom Technology Corp. may be a winner over the next 12 months. Earnings projections are showing a 27% increase over the same period a year ago towards $ .37 per share. EPS is slowing, but stabilizing, as sales have been growing steadily. Also, institutional ownership has been increasing as the company sports a PEG ratio of under 1. If Aecom can meet estimates, there could be an immediate upside toward $20 - the recent gap price and overhead resistance level that formed during October. On the other hand, if projections for the coming quarters are lowered, watch the downside below the double bottom support of $14.50 . Either way, this may be a stock to begin initiating a position in as it could get a boost from a massive stimulus package and recovery plan.
Crocs, the ugly footwear company with the uglier chart history is going to report after the close. This company is the poster child for a fad gone wrong. If you recall, just least year, Crocs was the love of many investors as the unparalleled comfort of their hideous shoes was thought to be correlated to the stock price. But as they say: beauty is only skin deep and the ugliness of that reality sent shares tumbling 95% from their high in less than 12 months. Sales have almost completely dried up and the EPS growth has done a complete reversal. In response, the company is now closing some of its manufacturing operations. The last remnant of sales may be seen this quarter as analysts are predicting revenue of $200 million and an EPS of only $.02. Looking back, even without an impending recession, this was one that could have been predicted - as long as an investor's feet were not caught under the spell of the of that magical footwear.
(What do I really think of Croc's ? Click HERE)
Thursday, November 13
There are many, including the great Warren Buffet that believe that retail is not such a bad investment these days. Perhaps we should take a breather from all of this "follow the leader" stock buying as we now hear reports that Berkshire Hathaway's quarterly net income is down 77%. As for retail, Kohl's and Nordstrom will both be reporting today and analysts expect both earnings projections to be down significantly. On one hand, it is expected that Nordstrom will show revenues of $1.84 billion and quarterly earnings of $ .31 per share. That is almost 50% worse than last year. Kohl's, on the other hand, is expected to report $3.88 billion of revenue and $.51 of quarterly earnings per share. This is only a 16% reduction from last year. Clearly there is much greater risk right now with Kohl's as shares have still not discounted warnings as expectations are still running high.
Friday, November 14
Sticking with the retail theme, Abercrombie will show us if the love of a brand will hold up against a consumer spending freeze. Shares have been tumbling recently as sales growth has deteriorated down to the single digits. It is expected that there is more to come and 2009-2010 will show steep losses as the economy slips further into a full blown recession. Analysts are still somewhat optimistic and estimate that the company will earn $.71 per share this quarter on $916 million of revenue. Shares are now off their 52-week high by 70% and unless there is a rosy outlook by management, there does not seem to be a light at the end of the tunnel, for now.
Related Reading:
The failure of the American consumer
Is there a Buffett backlash?
Something stinks at Starbucks
Insider's bail as McDonalds brews trouble
Andrew Horowitz is a money manager and the founder of Horowitz & Company. He is also the author of the bestselling book, The Disciplined Investor . Check out his latest investment idea or listen in as he hosts, The Disciplined Investor Podcast.
