Anyhow our game plan now is to buy stocks we like not on breakouts (for the most part) but on break downs - because the quant hedge funds will eventually turn their attention to the broken down sectors and have your 2-5 weeks rally, and then move on like locusts to the next field to raid. So we move onto "consumer discretionary" - among the best sectors for the past 5 weeks and now back to the junkyard per HAL 9000. On Tuesday I cut Buckle (BKE) exposure ahead of earnings just for risk aversion purposes ahead of earnings. Today the company reported fantastic earnings, the stock popped to $51s and then has sold off the rest of the morning, down to $46s. HAL 9000 is now in sell the retailers on any news mode. Again - it is not the news but the reaction to the news. When gas was falling from $4.19 to $3.79 the consumer was "back" - time to buy airlines, consumer discretionary, Las Vegas casinos, autos, housing! With gas now heading back to $3.95 you have to sell all those groups! Amazing how 15 cents here or 30 cents there causes trillions of market capitalization changes in the stock market. I sound facetious but I think it really is that simple at this point. If you can tell me each evening what tomorrow's price of oil will be, I can move my entire portfolio exactly where it needs to be and we will be "correctly positioned" for 24 hours about 80% of the time. That's the market in its current form; unfortunately my magic 8 Ball does not do oil.
Let's look at Buckle's results
- Apparel and footwear retailer Buckle Inc (BKE) posted a 89 percent rise in second-quarter profit, topping market estimates, boosted by solid sales at its stores and a one-time gain.
- Kearney, Nebraska-based Buckle, which currently operates 382 retail stores in 39 states, reported net income of $22.3 million, or 72 cents a share, up from $11.8 million, or 38 cents a share, a year earlier.
- Net sales at the retailer, which sells clothes and accessories for young adults, rose 37 percent to $169.8 million.
- Analysts on average had expected earnings of 59 cents a share, before special items, on revenue of $165.6 million, according to Reuters Estimates.
- The latest second quarter included a gain of 6 cents a share related to insurance proceeds received for one of the company's corporate aircrafts destroyed in a tornado.
- Unlike its rivals, who have been feeling the pinch of the weak U.S. economy, Buckle, which offers a compelling mix of third-party brands like Guess, Silver Jeans, Hurley and Fossil, has seen steady growth in its same-store sales.
So excluding the 1x benefit of insurance proceeds the company grew top line at 37% and bottom at 74%. For this sector that is extraordinary. So we found an excellent name in a sector that HAL 9000 will surely run into at some point in the next 4-6 weeks as oil falls so we want to buy on pullbacks, not breakouts, in this type of market - if we can get mid $44s we have an excellent entry near the 200 day moving average which we can "stop" out of if it falls to the $43s.
Current analyst estimate is $3.19 but excluding the insurance payment they reported a 66 cent quarter, so we'll say $3.25 for the year and at $46 we're looking at a forward PE of 14. Which is less than Home Depot (HD) and it's 1% projected growth rate ;) We continue to like this name fundamentally but will respect the charts to survive in this market. We'll compare this to Aeropostale (ARO) which reports after the bell and should also provide a very nice report.
Long Buckle in fund; no personal position
