With the biggest shopping season of the year just around the corner, we thought it would be timely to highlight some consumer sector companies that look attractive according to The Applied Finance Group’s (AFG’s) criteria for investment opportunity attractiveness, as they are in line to benefit from the upcoming seasonal spending patterns. The list of companies we have provided look the most attractive within the AFG consumer sector in terms of valuation attractiveness, economic performance, and overall investment attractiveness relative to their peers.

One of the companies that we feel particularly confident in is the retailer Kohl’s (KSS) which is currently a holding in The AFG 50, (a model portfolio of 50 large cap stocks designed to help Portfolio Managers save time, make more informed investment decisions, and outperform their benchmark). We are confident about Kohl’s competitiveness because they have a strong cash flow, strong execution, and have been outperforming their competition.

A trip through the mall tells the story: The recession of the past two years has devastated the retail industry, as overspent consumers have put away their credit cards, started paying off years of debt, and put the kibosh on shopping.

[Slide Show: 10 Retailers Gaining Strength From the Recession.]

4:20 PM, Aug 26, 2009 --

• NYSE down 9 (0.1%) to 6,687.94.
• DJIA up 4.23 (0.04%) to 9,544.
• S&P 500 up 0.12 (0.01%) to 1,028.
• Nasdaq up 0.20 (0.01%) to 2,024.

GLOBAL SENTIMENT

Q2 2009 Earnings Call

August 26, 2009 9:00 am ET

Dell (DELL) will release its results on Thursday, after the close, as second-quarter earnings season nears an end. The technology company is projected to have earned 23 cents per share.

Joining Dell will be fellow S&P 500 members Big Lots (BIG), Medtronic (MDT), Novell (NOVL), Staples (SPLS) and Tiffany & Co. (TIF). A total of 76 companies are confirmed to release results.

Sometimes, all the reasons others are shunning a company are the same reasons to initiate a position in it.

Take Fred’s, Inc. (NASDAQ:FRED), for instance, a deep-discount retailer with 600 stores in 15 southeastern states. Investors have punished the stock, sending it to levels that value it less than half of its competitors.

Deflation is alive and well. Given the significant loss of wealth for most households, this makes sense. Some examples experienced/observed over the last several months are listed below. Feel free to add your own in the comments section.

Green shoots has become a tiring term - clichés in the age of new media really run of out of gas quickly, and I recently took a two week working vacation to dig out green shoots for my readers. Data is nice, but you can get that anywhere and it basically starts arguments. So I told myself to take a hard look on the ground? What did I find? Brown shoots everywhere.

...Are anecdotes worth investing in? Just as Peter Lynch, you can start with these anecdotes but first you must ask yourself why is Wall Street so adamant about green shoots and the "bottom." Simple. Wall Street is congenitally biased to the upside, we were coming off a very sharp decline in the markets and Obama has a great ability to lead, convincing us and then remind us the world is not ending.

Numerous sources say that low quality stocks have led the recent US stock market rally. While that may be true in terms of percent change in price, looking at the question from the perspective of the slope of the primary trend, we draw a somewhat different conclusion about what’s doing well.

Review Method:

Stocks have been faltering a bit, but the underlying uptrend in place since the March 9th bottom has not yet been breached. On the S&P 500 Index (SPX) Daily chart below, you can see that Percent R has failed to complete another bullish re-test ... however, we currently remain in the top half of Acceleration Bands and above key exponential moving averages; so it may be premature to call an end to uptrend at this time. In addition, Daily Percent R has yet to break below the key 50 mid-level.

• GM bankruptcy within days. Bondholders rejected General Motors' (GM) debt-for-equity swap offer, a critical disappointment for the automaker which now faces the largest-ever U.S. corporate bankruptcy within days. GM did, however, reach an agreement with the United Auto Workers union, with the UAW agreeing to a 17.5% stake in a restructured GM along with $6.5B in preferred stock and a $2.5B note. The new restructuring plan will leave the government holding as much as a 70% stake in the automaker, and calls for paying off GM's secured lenders in full to expedite bankruptcy reorganization. Shares -2.8% premarket (7:00 ET).
• New Chrysler nearly here. Chrysler could leave bankruptcy protection as early as next week, with the restructuring process completed closer to 30 days from its April 30 filing rather than the previously estimated upper limit of 60 days. Chrysler's May sales were similar to those in April, signaling consumers believe the retooled company will survive. The speedy turnaround should give consumers confidence about General Motors' (GM) ability to emerge from bankruptcy protection.
• Banks want to be on both sides of PPIP. Some bank are pushing the FDIC for permission to bid on the toxic assets banks will put up for sale as part of the Public Private Investment Program. PPIP is aimed at private investors and the program will be funded with $100-500B in taxpayer money. Officials haven't yet specified whether banks will be allowed to both buy and sell troubled assets, but banks argue it would give them an added incentive to sell assets at low prices, or even at a loss, and would free up capital to spur more lending. Critics are unconvinced, and see the proposal as just one more example of banks trying to profit at taxpayers' expense.
• Capped bonuses = higher base pay. Citigroup (C) and Bank of America (BAC) are expected to raise base salaries for investment bankers to compensate for restrictions on annual bonuses. Morgan Stanley (MS) announced a similar plan last week. The three firms, which are hoping higher salaries will help them retain key employees, could spark a new pay battle on Wall Street as higher base salaries become the norm. UBS (UBS), which was criticized for raising salaries at its investment bank by an average of 50%, said it's sticking by its decision and will continue "to pay our employees in line with the market."
• Shell shake-up. Royal Dutch Shell (RDS.A) unveiled a management shake-up as part of a wide-ranging restructuring. Incoming CEO Peter Voser said the move will reduce the firm's complexity and cut costs. Among the changes: the sudden departure of Linda Cook, head of the gas and power division; the combination of exploration and production, gas and power and oil-sands businesses into two new units; and a major culling of senior executives. Shares -1.2% premarket (7:00 ET).
• OPEC cuts unnecessary. Saudi Arabian Oil Minister Ali al-Naimi sees no reason to further cut oil production because there are signs of a demand recovery in Asia (though not in the U.S. or Europe). OPEC members will meet tomorrow to decide whether to adjust output quotas, but al-Naimi recommends they 'stay the course' and predicts $75/barrel oil by the end of the year.
• Santander pays Madoff settlement. Banco Santander (STD), one of Bernie Madoff's largest feeder funds, agreed to pay $235M to settle potential legal claims by Madoff trustee Irving Picard. It makes the first time a feeder fund has agreed to make payments in the Madoff case, and raises the assets recovered for Madoff investors to more than $1.2B.
• Home prices fall (.pdf). S&P/Case Shiller's 20-city home price index fell 19.1% in Q1, the index's steepest quarterly decline on record and worse than the 18.7% drop expected. Still, March was only the second month in the last year-and-a-half not to post a record annual decline.
• Consumer confidence rises. Conference Board's Consumer Confidence Index posted another strong gain in May, rising to 54.9 from 40.8. Expectations rose to 72.3 from 51.0. Conference Board's Lynn Franco noted "while confidence is still weak by historical standards, as far as consumers are concerned, the worst is now behind us."
• Richmond Fed bounces back. Richmond Fed's Manufacturing Index rebounded sharply in May, rising to 4 from -9 as overall activity expanded for the first time in 12 months. Shipments rose twelve points to 9, new orders rose twelve points to 10, and the jobs index rose fourteen points to -12.
• Mortgage apps fall. Mortgage applications fell 14.2% last week, MBA reported. The average interest rate on 30-year fixed-rate mortgages rose to 4.81% from 4.69%.

Earnings: Wednesday Before Open

• AutoZone (AZO): FQ3 EPS of $3.13 beats by $0.24. Revenue of $1.7B (+9.3%) vs. $1.6B. (PR)
• American Eagle Outfitters (AEO): Q1 EPS of $0.08 beats by $0.01. Revenue of $612M (-4.4%) in-line. (PR)
• Chico's FAS (CHS): Q1 EPS of $0.11 beats by $0.03. Revenue of $411M (+0.2%) in-line. Comps -3.2% vs. -17.5% last year. (PR)
• Dollar Tree (DLTR): Q1 EPS of $0.66 beats by $0.06. Revenue of $1.2B (+14.2%) in-line. (PR)
• Staples (SPLS): Q1 EPS of $0.22 beats by $0.01. Revenue of $5.8B (+19.1%) in-line. (PR)

Earnings: Tuesday After Close

• Take-Two Interactive Software (TTWO): FQ2 EPS of -$0.04 beats by $0.09. Revenue of $230M (-57.4%) vs. $218M. Sees Q3 EPS of -$0.55 to -$0.65 vs. consensus of -$0.05 and revenue of $145-165M vs. $239M. (PR)

Today's Markets

• Asian markets surged forward, closing well into positive territory. Nikkei +1.4% to 9,439. Hang Seng +5.3% to 17,885. Shanghai +1.7% to 2,633. BSE +3.8% to 14,110.
• In Europe at midday, London flat. Paris +0.6%. Frankfurt +0.3%.
• U.S. futures: Dow +0.2%. S&P +0.2%. Nasdaq -0.1%. Crude +1.1% to $63.13. Gold -0.5% to $948.30.

Wednesday's Economic Calendar

• 7:00 MBA Mortgage Applications
  7:45 ICSC Retail Store Sales
  8:55 Redbook
  10:00 FHFA House Price Index
  10:00 Existing Home Sales
  10:30 EIA Petroleum Status
• Notable earnings before Wednesday's open: AEO, AZO, CHS, DLTR, RL, SPLS
• Notable earnings after Wednesday's close: TIVO

Seeking Alpha editor Eli Hoffmann contributed to this post.

With the market ramping up the past few months, Goldman Sachs has been quite busy editing their coveted Conviction Buy List. For those unaware, Goldman's Buy List is simply a list of the names they deem to be 'the best' at present. They also have a Conviction Sell List, which outlines stocks to be avoided at all costs. Just last week, we went through and updated the changes to their Conviction Buy List. And, here we are yet again with another round of some additions and a lot of subtractions.

Before we begin, do note that we don't necessarily place too much weight on individual analyst calls. As evidenced by the massive market decline of 2008, many analysts were behind the ball and were reactive rather than proactive. As such, we take it all with a grain of salt. That said, we also realize that many of these reports can move markets and influence opinion of various stocks, which is why we cover them. As we like to say, you have to "trade the perception, not the reality."

Be bullish! Be long! And (in the immortal words of Jeff Goldblum from the 1986 movie The Fly), be afraid…be very afraid!

Even after rallying more than 25% off of the March lows, the S&P 1500 is still 39% below its 52-week high. The average stock in the index is even further below its 52-week high at -44%.

But there are stocks that have been doing extremely well lately, and below we highlight the 30 names in the index that are the closest to their 52-week highs. Carter's Inc (CRI), 3Com (COMS), Hansen Natural (HANS), J&J Snack Foods (JJSF), Macrovision (MVSN), and MAXIMUS (MMS) are all less than 1% from their 52-week highs. As shown, the majority of the stocks on the list are in the consumer sectors. There are no Financials, Industrials, Telecom, or Utilities on the list.

Warm weather in the latter stages of April has brought bargain-seeking consumers back into the malls. If a retailer was visibly strong in its promotional tactics, then their April comparable store sales (comp) will likely surpass consensus estimates when all is said and done. We believe that Aeropostale Inc. (ARO), American Eagle Outfitters Inc. (AEO), Pacific Sunwear Inc. (PSUN), and Old Navy (division of Gap (GPS)) led the charge this spring, conveying to customers an appropriate balance between price and quality.

In the aggregate, retailers have begun to discount merchandise at a quicker pace than in prior years at this juncture in the season, despite inventories being very lean. Ultimately, we do not see a host of 1Q09 upward earnings revisions on the April sales releases. Margin upside was likely tempered from unfavorable weather early in the month, and later in the month from increased discounting (that went beyond first markdown).

First Coverage Market Sentiment: Bearish	First Coverage Index: 48.0	Weekly Change: -1.9%	Sell-Side Certainty: Positive
Bullish Industries (2)	Neutral Industries (4,-2)	Bearish Industries (4,+2)	Weekly Sentiment Change
	Basic Materials
		Consumer Goods (-)
	Consumer Services
		Financials	Bullish
Health Care
		Industrials (-)	Bearish
		Oil & Gas	Bearish (x2)
	Technology(-)		Bearish
Telecommunication (+)			Bullish
	Utilities

1. Visa (V)
2. Dollar Tree Stores (DLTR)
3. Wal-Mart (WMT)

I've compiled a list of charts below - all these names trade over their 20, 50, and 200 day moving averages - which is a rare feat in this market. While I am reticent to chase a market that is up so quickly, these would be the type of charts we'd want to focus on if the next pullback is just a healthy consolidation on the way to an intermediate move higher OR we trade sideways. While more "fast money" could be made speculating on flavors of the day like Citigroup (C) - that's more for the Las Vegas set. - or more beaten down names which are jumping due to short covering, this is more a list of "strength". Many of these names we've discussed in the past few weeks....

These are sorted by highest market cap to lowest (all the names in this list are over $2 billion market cap, I'll post smaller names later) As you can see, there are a lot of beauty recession plays, from auto replacement stores, which we discussed 2 months ago, to dollar stores on the list - as people enjoy a lifestyle of staycations and sending tax money directly to AIG (AIG) and Goldman Sachs (GS) millionaires.

We haven’t talked about selling stocks at a gain for quite some time. And we all know the reason why – there haven’t been many to talk about. But that doesn’t mean that there aren’t any. In fact, the markets have been up over the last week. For many who have become comfortable with their bear market portfolio, prepare to be unnerved.

The companies many investors have used as defensive plays have performed very well – compared to the rest of the market. But that doesn’t mean that these stocks will continue to move that way. If we have a new bull, things will change. And fast.

F4Q08 Earnings Call

February 25, 2009 9:00 am ET