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Neal Razi
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I am a value investor but with an emphasis on two things: Technicals and Dividends. This emphasis lets me play it safe and minimize my risk. Assuming a value stock is actually a good deal and not just a value trap, with many there eventually should come a chart pattern that shows that others are... More
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  • Broad Weakness In June 2012 Retail Sales Report

    It has been awhile since I've done an article on the monthly Retail Sales Report from the US census, but I felt this one needed some commentary. During June 2012, Retail Sales fell a substantial -0.5% overall. Excluding autos it fell -0.4% and excluding gas and autos, it also fell -0.2%.

    This report is a very important one economically, because we know what is happening in Europe; it stinks. US economic strength or weakness at this point is going to depend squarely on the US consumer, and this report gives great insight into what that all important buyer is doing. However, you'll note widespread weakness across most sectors, even with a big drop in gasoline prices. This shows not only a slowdown, but could portend a recession.

    Let's take a quick look, along with corresponding investment advice

    (click to enlarge)

    Gasoline was the most notable decline, dropping -1.8% and barely rising +0.1% for the year. Since gasoline is mostly a fixed expense, normally that would mean other categories would gain, but you will see that is not the case. Investor Note: I'd stay away from anything refining at this point, such as Valero (VLO) or Sunoco (SUN). 9X earnings is not cheap enough for such a cyclically sensitive business.

    The next important category is restaurants. It also dropped, coming in at -0.2% and only +0.3% for the year. Food services is often a very good leading indicator of overall spending confidence. Investor Watch: More caution needed here. Avoid highly priced growth stories like Chipoltle Mexican Grill (CMG) despite a 10% drop off highs. Growth stocks can turn sour in an instant, and CMG's chart is looking very bad.

    Electronics was down -0.8% and even more -1% for the year. Investor Watch: Steer clear of Apple (AAPL) which has almost no new products and if you really want to take some risk on, you can try shorting Best Buy (BBY), a store in continual decline. I think a dividend cut is coming, and their stock will plummet on that news.

    Building Materials, the category I had been highest on (to a nice profit), is even turning lower. It was down -0.6% and only up 0.6% year on year. Investor Watch: While construction really can only continue to come off decade lows longer term, in the short term companies like Home Depot (HD) and Lowe's (LOW) are trading at high multiples of 20X earnings. While excellent long term investments, I would avoid adding to those positions for now.

    One of the bright spots, Autos, displayed weakness dropping -0.7% for the month. However, it is still up a whopping +8.1% for the year. Autos are still benefiting from pent up demand and loosening credit, so I wouldn't count this category out, despite being a cyclically sensitive one. Investor Watch: General Motors (GM) and Ford (F) are still extremely cheap on a valuation basis and continue to make progress on turning their companies around.

    Finally, Non Store retailers actually gain, as the shift from brick and mortar stores continues. They rose 0.5% for the month and almost +11% for the year. This is more of a secular trend, I feel, than anything related to the economy.

    Overall, this report is weak. Falling gasoline sales did nothing to tweak demand across other areas, instead many of those areas fell, even categories that have been improving like construction and autos. This report makes me very cautious about the US economy. While it may just be a summer slowdown, it is possible we could be heading into another recession. Be careful with your investments and follow the economic data closely.

    Disclosure: I am long GM.

    Tags: AAPL, BBY, CMG, F, GM, HD, LOW, SUN, VLO, economy
    Jul 16 5:50 PM | Link | 1 Comment
  • Check your Bank of America account for fee
    I just notice at erroneous fee on my Bank of America statement.  I have an "advantage" account which I mainly use to pay my mortgage.  It comes with a few nice benefits, like a safe deposit box.  Since I have a mortgage with them, all fees are supposed to be waived.

    Turns out the fee went through because my mortgage wasn't linked.  After hearing from the representative that my mortgage had become unlinked from my checking account, and that this has been happening a lot, I'm nearly certain what caused it.

    They just changed their home loan organization from "Bank of America Home Loans" formerly Countywide, to "Bank of America".  That's likely the cause of the unlinking.

    If you have a BAC checking or savings account linked to one of their mortgages, just check to make sure you aren't getting unnecessary fees.

    Good luck
    Tags: BAC
    May 25 1:56 PM | Link | Comment!
  • Value breakout: Hewlett Packard (HPQ)
    Hewlett Packard is a great value play that has been demonstrating a chart breakout this last week.

    Hewlett Packard is one of the world's largest IT companies, producing printers and computers as well as being a leading IT service provider.  It has scale manufacturing advantages that give it what Morningstar would term "A wide moat".

    Last April, the stock traded at just under $55 before the general pullback in the market and was then further hit by scandals concerning their CEO Mark Hurd. His resignation, subsequent hiring by rival Oracle, and appointment of CEO Leo Apotheker, a software specialist, created questions about HPQ's management and direction.  Hardware purchase slowdowns that also brought Intel low bit into Hewlett Packard, a series of acquisitions created uncertainty, and by September, the stock was down to $38.

    Now the last I checked, a new CEO is not going to have a noticeable effect on sales or earnings that quickly, and what ultimately drives a company's performance is earnings.  I began getting interested, as I like large cap, high quality companies at a discount.  The Palm purchase brought them a great OS that HPQ can use in their upcoming tablets, which I think will be a big hit.  While I question the idea of shifting HPQ too far into software, I don't see a little more focus on it as a negative.

    About a month ago, after a brief rise, I noticed HPQ going through what looked like a small symmetrical triangle, and bought in.  Now, over the last week, it's gone through a very obvious Three White Soldiers candlestick (and today would make it Four soldiers!).  

    Chart for Hewlett Packard over the last 3 months.

    I view this as a great chart breakout pattern, and still an excellent value play, as HPQ is still only 12X earnings and at a substantial discount to S&P $58 price target.  With 11 billion in cash on the books, they are unlikely to run into liquidity problems.  Along those lines, one thing I never liked about Mark Hurd was the lack of any meaningful dividend. With the change, we may now see one.  The dividend payout ratio currently stands at a paltry 9%, and could easily be increased with no negative effects.  If they were to even move up to Microsoft's far from lucrative 25% payout ratio, you'd see the dividend almost triple to approximately 2.5%.

    With HPQ beaten down over management turmoil, you can take advantage to get an IT hardware & services leader on the cheap, with some solid technical muscle and the potential for a rising dividend.

    Disclosure: I am long HPQ.



    Disclosure: I am long HPQ.
    Tags: HPQ
    Jan 06 4:52 PM | Link | Comment!
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