Earnings Season Preview: Anticipate 'Pulled Guidance'

Earnings season does not really begin in earnest until NEXT week but the first wave is hitting this week. I believe this quarter will be one of "pulled guidance" (we have no visibility) and lots of complaints about the stronger dollar hurting the multinationals. Bulls will keep saying "yes but that's the past, you have to buy in anticipation of the coming recovery". Bears will snort. So we begin....

Here are some of the names I am watching both for company specific comments and greater macro economic views. I don't have time to break it out like this every week since so many more companies begin reporting each week, but here is an example of what I look at each week of earnings season as I assimilate as much info as possible ;)

Monday: Fund position Mosaic (MOS) - we've had a nice recovery into a key resistance area (50 day moving average). You can see this stock so trashed that the 200 day moving average is not even within the picture (it's up in the mid $80s!).

I expect the news to be not so great, and talk of recovery "one quarter out" but it will take longer than that I surmise. That said, we hold a few commodity stocks on the "reflation" trade and any day oil, or the Baltic Dry Index rise HAL9000 and friends drive up commodity stocks as if the world economy will turn any moment now.

Wednesday: Bed Bath & Beyond (BBBY) - as a horde of December retail reports arrive on Thursday, we should get a preview with BBBY. Let the bankruptcies and strip malls emptying begin. I mean... let the 2nd half 2009 recovery begin...

Family Dollar (FDO) - one of the beneficiaries (in theory) of my "Pooring of America" theme (plus first consumer led recession in 25 years). However, this one is no secret and at 15x forward earnings much of this might already be in the stock price

Monsanto (MON) - another agriculture stock; a unique franchise and not part of the once popular fertilizer cohort. At $73 its below the 50 day moving average of $76 despite the market rally - unfortunately in this day and age, anything commodity related is more linked to oil prices or shipping rates rather than their own individual businesses.

Ruby Tuesday (RT) - this is one example of a stock where I did not benefit from my "this sector is in real trouble" call from fall 2007. I was pointing out the coming weakness in consumer discretionary that would be coming as the punditry assured us that "its just a subprime problem" and "Ben Bernanke has it taken care of... no recession here - move along" Combined with commodity prices that were flying higher [Food Inflation Starting to Hit Restaurants] and restaurants were one of my favorite themes for very bad things happening [Tough Times Ahead: Restaurants?] In October 2007 I said let's take a look at Ruby Tuesday as it had fallen from $19 to $17 [Let's Check in on Ruby Tuesday] By January 2008 [3 Months Later - Let's Look at Ruby Tuesday] Now, its a $1.50 stock. Wow, just imagine if there had been a recession...


No reason to try to squeeze blood out of a stone - from $17 to $2.50 would be good enough for me. But this an example of why a hedged portfolio (long AND short) is superior to long only - you can find a lot of weak individual names. And even in bear markets can offset the losses in long positions with some huge winners. Now at some point if a company like this can stay in business you'll see the stock double from $1.50 to $3.00 overnight out of the blue... or if the Obama recovery takes hold heck it might be a $8 stock "any moment" now as all these former accountants turned shovel diggers under New Deal 2.0 need a place to eat. But on a serious note - just as we have far too much retail space, we have far too many restaurants - many need to close and more strip malls and stand alone buildings will empty in 2009.

Thursday: Chevron (CVX) - see comments above - Baltic Dry Index or oil up, 150 commodity stocks from oil to copper to fertilizer to wheat to steel to dry bulk shipping go up. Don't hate the HAL9000, hate the game.

Apollo Group (APOL) - this is a bona fide thesis stock; as hordes of unemployed Americans hit the streets they will be going back to University of Phoenix for schooling. Even if they are struggling to survive and don't have funds... but that's ok. It's thesis. At 22x forward earnings its rich for a 10-15% growth rate. One of the strongest charts of back half 2008 - thesis baby. I'd actually be very scared to be a long in a stock like this because one of these quarters it is set up to disappoint in a big way - maybe not this one, but once thesis turns to reality - you get a big swoon. I don't like to gamble on earnings since they are 50/50 propositions but sometime in 2009 I think this one gets the hammer. That said, I wish I had bought it last summer - I missed the thesis.

Pricesmart (PSMT) - this is an interesting little company based in San Diego: effectively a mini Costco of Central America and growing like gangbusters. Since every emerging market stock was hammered so has this one but the company earned about $1.30 in 2008, grew revenue by mid 20%s year over year and has a trailing PE of 16. As with almost all emerging market stocks (which again HAL9000 seems to trade all in 1 basket with no differentiation) it has made a major rebound and now stands at the cusp of resistance...

Friday: KB Homes (KBH) - more terrible news; more begging of nanny state to save the housing market. Yawn.