Soos Global Market Musings

Tuesday, March 11, 2014

American Eagle Outfitters (AEO): Weathering the storm

Fyi….Position update…..In addition to periodic global-macro posts to this blog, we occasionally share position updates that are routinely shared with our investors. These comments are absolutely not meant to be investment advice and readers are reminded that all comments posted here are for information and entertainment purposes only! Any commentary, especially those that include specific mentions of 'buying' or 'selling' or 'positions', is made solely for those limited informational and entertainment purposes, and NOT as advice. While we will be sharing some detail on changes made to our portfolios, it's important to consider that our portfolio decisions are taken in a much broader context of our overall portfolio strategies and our assessment of each of our investor's unique financial profiles. As such, what we do, and when we do it, is specific to our investor portfolios and is NOT intended, in any way, as advice for use by others.
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The weather is largely to blame, but not totally, for AEO’s underwhelming earnings report and gloomy forward guidance. A move by trendy teens towards cheaper chain stores (eg: H&M, Zara) also took a bite out of earnings. This left AEO with higher than expected inventory levels, tighter margins and higher promotional costs. A bad combo!

That said, the price of the stock, which had already been lagging especially since the departure of the CEO in January and anticipating a bad ‘weather’ related earnings report, is down today over 7%. The optimists, among which I count myself, think that the company will pare down their inventories, control costs and continue to gain from expansion efforts especially in overseas markets.

Perhaps hardened by the tough NorthEast winter, at this point I’m still ready to weather the AEO storm. I added to our position on the selloff.

The upcoming warmer seasons should be telling.

Will keep you posted.

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(Please note: This article is solely meant to be thought provoking and is not in any way meant to be personal investment advice. Each investor is obligated to opine and decide for themselves as to the appropriateness of anything said in this article to their unique financial profile, risk tolerances and portfolio goals).
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Additional Disclaimer: currently long many stocks/ETFs incl. AEO. Positions may change at any time without notice.

Tuesday, February 18, 2014

That's a bunch of....Waste.....Management, that is (& US Ecology)

Waste Management (WM) reported earnings today and disappointed vs Street estimates. Market took stock down close to 5%. (see first chart below)

The company also announced a 2.7% hike in the dividend (which is approx. 3.3%) and a share buyback of $600mm.

I still like the theme of waste removal, the high barriers to entry in this space, and the seeming uptick in the US economy which should help WM’s business on both corporate and retail level. The latter, too, should be helped by privatization of services by struggling municipalities.

Technical players are likely to look at today’s price action as bringing WM close to key support levels and close to technically ‘oversold’ conditions. Will be watching those levels closely as first key tests of support for a bounce.

Brought total position up to 3% from 2.4%. If it dips further I’d likely add.

Another company in this space that I’m eyeing is US Ecology (ECOL) (no current positions). They reported earnings last week, and on that day, the stock took its own ‘flash crash’ before rebounding strongly! (see second chart below). The market was initially concerned about a decrease in revenues from Gov’t contracts, which on the earnings call, the company explained as being largely due to the 2013 sequestration and budget cuts. The business, however, is quite diversified, and the company sounded quite positive on upcoming projects for 2014 in other customer segments.

ECOL is a relatively smaller company and trades in much less average daily volume. But on a pullback from current levels, this is on my shopping list.

Will keep you posted.

Fyi….

Please continue to visit Soos Global Market Musings for updates.

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(Please note: This article is solely meant to be thought provoking and is not in any way meant to be personal investment advice. Each investor is obligated to opine and decide for themselves as to the appropriateness of anything said in this article to their unique financial profile, risk tolerances and portfolio goals).
Disclaimer: Please read and consider important information related to all communication made by Soos Global on this site by clicking here.
Additional Disclaimer: currently long many stocks/ETFs incl WM. Positions may change at any time without notice.

Wednesday, February 12, 2014

The "Cold" Facts: a quick thought.....

While you’re sitting there thinking about how cold it is, consider this info from the US Energy Information Administration website:

Have a look at the first chart and note how natural gas prices have doubled in the past 2 years.

Then look at the next two charts.

The first shows the temperatures across the US for the 7-day period ending Jan 30.

The second shows how that deviates from the average temperature historically during that same 7-day period.

Not surprisingly, there’s a huge portion of the country at significantly lower temps than in years past, requiring more heat, at higher prices per unit of heat.

Going to have any impact on the percentage of income that is available for discretionary spending????? Hmmmm……

Please continue to visit Soos Global Market Musings for updates.

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(Please note: This article is solely meant to be thought provoking and is not in any way meant to be personal investment advice. Each investor is obligated to opine and decide for themselves as to the appropriateness of anything said in this article to their unique financial profile, risk tolerances and portfolio goals).
Disclaimer: Please read and consider important information related to all communication made by Soos Global on this site by clicking here.
Additional Disclaimer: currently long many stocks/ETFs incl XLE. Positions may change at any time without notice.

Monday, February 10, 2014

Themes for 2014: Comments on WORTH Magazine Article

Fyi….an investor asked for my thoughts on the themes mentioned in an article in WORTH Magazine. .
Below you'll find parts of the discussion and views on each point raised in the article, in turn. Many global issues are addressed and currently form the backdrop into which our investment strategies are positioned. But please note: As always, the comments expressed here are for informational and entertainment purposes only and are not meant to be investment advice in any way!

Fyi.....

Regarding the WORTH article “5 Key Investment Themes for 2014”, my opinion on each in turn:

“Emphasize stocks, especially non-US stocks, over bonds”: I agree re overweighting stocks. I disagree about not abandoning bonds. I’m out of bonds and expect to stay that way for a while. I also agree that int’l equities are looking better on a relative value basis vs US equities, but I still think that EM and other int’l markets need to show some signs of stability before I’d allocate heavily directly into that space. As you know, I’ve chosen the more defensive approach to int’l exposure by owning large, multi-national US companies (or select Europeans, like Unilever (UN)) that have been substantial footprints in global markets.

“Complement core bond holdings with a multi-sector approach”: I don’t like this whole section! The comments about Tsys and investment grade bonds softening the blow should equities blow up hasn’t really shown itself to work very well. Yes, historically, over longer periods of time, bonds were viewed as hedges for equities, but as I pointed out in a missive some time ago, the relationship is not rock solid and when it doesn’t work, then you’re hurt both in stocks and in bonds! Cash is not a bad thing to own when you expect equities to face near- and mid-term headwinds, in an environment of generally rising interest rates (as we expect in the US, possibly soon in the UK, and in many EM countries that are using higher rates to defend their currencies and to fight inflation). As for floating rate debt, while that might be good when rates finally do rise, at the moment, what’s the yield? (I suspect asymptotically approaching zero!). High yield bonds? My correlation work shows that they often act like equities, so what kind of fixed income hedge would that be for a falling equity market?! Distressed debt? Maybe. But this space is very situation specific, real ‘alpha’. If you have a distressed situation that you think could turn around even in a troubled global economy, then that is true alpha and uncorrelated w/other assets. As for ‘hedge funds’, I believe that market commentators are too flip when bunching ‘hedge funds’ into ‘alternative’ assets. As you and I both know, saying ‘invest in a hedge fund’ is like saying ‘eat a restaurant’! Each has its own menu, its own chef, its own prices, its own expertise, its own specific asset class or strategy of focus. Bottom line, if you expect inflation, then I would not own bonds. I would select stocks that could benefit from a rising price environment. And I’d add select commodity exposure, either directly, or as I’ve done, through companies that would benefit from higher commodity prices.

“Follow Europe out of its Dark Ages”: on this we agree, though I’d be very selective and would not go too boldly into a region that is saddled still with suffocatingly high levels of debt and tragically high levels of unemployment, with a set of peripheral nations, though in less bad shape now than in recent past, are still time bombs ready to blow! The “summer-2012-Draghi-I’ll save the Euro at all costs” effect is still helping Europe stabilize. And each day that goes by when countries like Spain and Italy can enjoy 10yr yields below 4% is a day in the right direction. But budget deficits are still a problem, and with this past year’s run-up in the Euro, global competitiveness is challenged.

“Emerging markets will re-emerge”: I agree. I do think that much of the timing of this depends on China and its effectiveness in rolling out the reforms that were outlined in late 2013 at their last Communist Party Plenum. On this, I’m optimistic. Also, for the past few years, I have focused on the Emerging Markets infrastructure build-up, investing in companies related to that effort, such as construction, machinery and other business services. I’ve switched the central focus to one that will capture a growing middle-class in Emerging Market countries, who will likely have more and more discretionary spending habits over time. Again, I’d tread carefully in terms of direct EM exposure at this time. Many of the countries are experiencing great amounts of stress as Fed tapering has sparked capital flight out of EM, which has hurt their currencies, which in turn, has led many of the EM central banks to engage in counter-cyclical policies of raising rates in order to defend their currencies and to fight inflation. There are many large multi-national US companies that have over 50% of their business in global markets. I’d focus there first, and only slowly add to direct EM exposure.

“Global synchronized growth could be 2014’s big surprise”: I think this is correct. As I mentioned, I think China holds the key. Success on their reforms will have a much larger domino effect on global markets than if the US GDP inches up. Europe too is important to watch. Stability needs to reign there, or else we’ll have turbulence and fears of a global financial crisis. Finally, the article only mentions ‘geopolitical events’ almost as a ‘by-the-way’. I think geopolitical events could be pivotal. If we have a major oil supply disruption from the tumult in the Middle East, that will especially impact Europe, China and Japan. If we have any form of rogue sovereign action, such as North Korea striking South Korea, global markets will be unraveled. I think the US holds one big geopolitical event this year, being the mid-term elections. A big shift in either direction in terms of either house of Congress could have serious market impact.

Please let me know if you have any questions and if you’d like to hear more specifics about holdings and how they fit in with these global views.

Best,