Sunday, May 11, 2008

Earnings of Interest this Week

We are winding down yet another earnings season; only a few more land mines to dance through - we have the first of the Chinese solar names reporting and later in the week we have the first confessions in major retailers. Watch for a lot of confessions in the next 3-4 months about how the "2nd half of 2008" is not shaping up as rosy as everyone believes it will be now. They might get a short term spike from these handouts... err rebate checks, but I think far less than people expect - more important will be the strain consumers will feel under $4 gas, and next winter's heating bills.... along with agflation (food inflation)

I'll be interested to watch the market reaction next Thursday - will the major retailers cause a "relief rally" on "hey the results are not as bad as we thought" or will they cause a selloff on "what, you mean the consumer is under duress?" - any major slashing of guidance by KSS or JCP could cause the thinking to change to "hey maybe we better re-assess if 2nd half rebound is fantasy or not" - we'll see.

On the economic front we'll have export and more important IMPORT prices (which show me the true story in inflation - it's been running around 14-15% of late) Tuesday, and then to offset that truth is the lie that is Consumer Price Index (CPI) which is the government's report on what inflation "is". So truth on Tuesday, lie on Wednesday.

Companies I'm watching

Solar names JA Solar (JASO) which we don't own but the stock is behaving very well, and LDK Solar (LDK) which we do own; the latter, after being comatose, has shown some life of late.

Another Chinese solar Canadian Solar (CSIQ) which has just about the best chart in the entire sector

Speaking of solar we have Applied Materials (AMAT) which is trying to remake itself into a solar brand it appears

Cameco (CCJ) a uranium name which has NOT participated in the commodity boom (strangely) but if you want to play nuclear this is the way to do it - some signs of life here the past week

TJX (TJX) which is a retailer who caters to the off rack "poorer" America (TJ Maxx and the like), but the big kahuna of the pooring of America trend is going to be Walmart (WMT) - I truly think the next 12 months is going to be a time of revival for this brand (which is an unfortunate thing in terms of what it means for the direction of our country) As I said a long time ago a nation of Target shoppers will be forced involuntarily to become a nation of Walmart shoppers [Dec 26: Target Shoppers Turning into Walmart Shoppers]

Speaking of which one of my favorite short ideas (although its scary to short these into earnings because of the "hey its a terrible number but we expected abysmal so take this stock up 30%!) of this Walmart nation is Whole Food Markets (WFMI) - I expect economic reality to push people out of healthy organic foods back into junk or lower cost food (read: cheap) so a lot of formerly upper middle income people will be forced out. That's pooring of America 101 - and a threat to WFMI the next 2 years.

A seismic measuring company (oil field services) we once owned CGGVeritas (CGV) - I continue to like this space but this company has seemed to disappoint on earnings quite a bit.

Chinese travel player (CTRP) - this is a name I have followed for many years; they are steady like a rock but the valuation is now getting heady for me so as I stated last week I cut back almost all I had going into this week's earnings. Hoping for some sort of miss or cautionary guidance to drive the stock down so I can buy at lower prices.

Major ag equipment player Deere (DE) - I don't own the equipment stocks anymore; at some point the rising cost of steel, petrol products and the like will be hurting the bottom line unless they can pass all the costs along to farmers - over the next year if inflation does not abate this is the type of company who could see profit margins squeezed simply from the constant increase in input costs.

Hewlett Packard (HPQ) - a bit of a technology bellweather

JCPenney (JCP) - we know the numbers will stink; it's just a matter of how bad. As always it is dangerous to bet against these stocks into earnings because of the same reasons mentioned above i.e. "results stunk but hey not as bad as expected, take the stock up!" Wait until the 2nd half, when they constantly are bringing down estimates... it's not going to be a good Christmas for clothing stores.

Kohls (KSS) - see JCPenney although Kohl's is a better company in my view

Urban Outfitters (URBN) - this clothing name has defied the trend and still seems to produce product people will pay up for...

Abercrombie & Fitch (ANF) - a darling for a long time with its very pricey products; even teenagers seem to be trading down to Aeropostale (ARO)

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