Guest author CrossProfit: Some Retail Stocks are a Tough Call – Starbucks (SBUX)
Obviously there will be some winners and some losers. More importantly is the general perception of the street for the sector as a whole.
At present the markets are apparently in a valuation correction mode. Not that PE’s are so terribly high – it’s more like that future earnings are a major concern. Taking this into account the market is reacting to a possible earnings downgrade to some retail stocks in particular.
For several months now, CrossProfit has been warning about Starbucks (SBUX) being overvalued. The first warning was issued in 02/07 (see CrossProfit News Bulletin Archives – green column). In the beginning of July when SBUX hit $36 we posted a yellow warning that there was still another 15% downside to come. It came sooner than we expected!
There are two factors at play. First and foremost, a general uncertainty regarding the well publicized U.S. economic slowdown. Bernanke recently reiterated this generally accepted phenomenon and labeled it a ‘consumer slowdown’. Hence, retail stocks are taking a hit.
The second factor is consumer trends. Retail is notorious for changing direction over night. Not long ago several major league players got it wrong and paid dearly for their miscalculations. In the U.K., (apparel retailer) M&S was in the doldrums for years and just couldn’t seem to get back on track. Now M&S is in fashion again.
The market has a tendency to overshoot in both directions. The U.S. slowdown will not be as severe as the market reaction renders which will result in investment opportunities. As for retail in general; markets have been pretty good in predicting imminent trend changes.
Retail stocks in your portfolio that are trading in accordance with the ‘earnings factor’ will bounce back in the near future. Q2 earnings coming out indicate that earnings growth has not fallen below 7%. The bears are now heading back into hibernation and will most likely try again just prior to Q3 earnings season. Undoubtedly they will be thrown back into an extended winter slumber.
As for retail stocks that are trading down due to genuine fundamental concerns – well you know what to do…don’t bear it – sell it.
Disclosure: This is the opinion of a CrossProfit analyst and is the consensus of the CrossProfit analyst/research teams.
yeah, your right about that.
even the e-tailers amazon
and netflix got crushed.
the chipoltes had a small
starter bounce from 48.70 >
53.50 and i was so afraid
the earnings were gonna crush
the bounce. but its one of the
few. GYMB was knocked to the
29s this morning. anyway
i got some good lines
on this CMG posted under
Garmin. for what its worth
my index studies detect
a steady rising tide for
9 days straight. dare
we think a new intermeidate
index rally? i think there
is a ton of sideline money.
If nasdaq crosses 2,100
they have to pour in as we
are just 3-4% off the bottom
and if they dont pour in now
they will have to chase later,
and no want wants that.
thoughts??
hey guys
what about them oil service
stocks. the insiders are
milking the 2 year run up
in droves. most charts
topped earlier in the year
and there is numerous
first and second shoulder
roll over action. thougts?
any shorts to recommend?
boris-
Compare earnings reports for NBR and RIG. NBR is solid, RIG is not. Note the tone on future guidance. Do not advise to short NBR. RIG over $75/76 is a short. You’ll have to wait a bit for the bounce.
CrossProfit.com
Wednesday Chipoltes
13 day bounce from
48.70 > 56.50
has been hammered back
to 50.25. rather brutal
considering one of
most attractive greenfields
in retailing. but then the
4 day pull back from
Friday mornings peak
has been 67 nasdaq
points, and would be worse
had not been for CISCO
pumping up index today.
still nasdaq index has
fallen into typical
over sold starter bounce
zone of 2050-ish again.
it happening over and over
since the 7/17/06 lows.
call it the stingest
13 day rising tide ever.
I continue to believe that
Chipotles is earning $3 after
tax eps per 500 units. also
the Jack Box Clone Quoba
is dueing unit volumes of
900,000$ or 40% less then
CMG and alot are franchised.
I cintinue to believe that
CMG is a new generation
Taco Bell store front,
a new generation McDOnalds
back office. on path to
2,000-10,000 units.