Top Gun FP Client Note: The Bottom Line Is The Bottom Line
NOTE: Every week I write a Client Note for my clients. For a limited time, I am allowing non-clients to sign up and receive the Client Note. You can sign up at the top right hand corner of the website. Here is this week’s.
Everything depends on earnings.
– Richard Sichel, Chief Investment Officer, Philadelphia Trust Company
We’re finally about to get the only kind of information that ultimately matters when it comes to the stock market: earnings. This is the first big week of second quarter earnings and a number of bellwether names are reporting, starting with Goldman Sachs (GS) and Intel (INTC) tomorrow. Google (GOOG) reports on Thursday and the big government owned banks (JP Morgan, Citi, Bank of America) will be reporting on Thursday and Friday as well.
The market is rallying today in anticipation of big numbers from Goldman
. The New York Times ran a front page piece forecasting a blowout quarter for Goldman and uber-bear Meredith Whitney raised her rating on Goldman to buy this morning.
But my sense is that earnings will be quite lackluster. Intel will give us insight into corporate IT spending and Google into online advertising spending. Both of these stocks have made tremendous moves off their March lows and are going to need solid reports to keep propelling their stock price.
The unemployed don’t spend much.
They do, however, brush their teeth and power their homes and seek medical care. And the companies that sell such products or services could remain attractive investments as the economy heads into what many see as a jobless recovery.
I continue to prefer a defensive posture in our portfolios. The Wall Street Journal had a good article on the front page of its Money & Investing section this morning on what this entails. I wrote a blog post
on the piece this morning – e-mail me for a link to the entire piece.
One sector that continues to interest me in this respect is the pet market. 63% of American households own one or more pets. Consumer spending on pets has nearly doubled over the last 10 years driven by two powerful demographic trends: baby boomers becoming empty nesters and young couples delaying having children. More and more younger couples, with both working, appear to be substituting pets for kids. Pets have become “humanized”, more and more an essential part of the American family.
It’s no surprise then that spending on pets has continued to hold up well in the current recession. Same store sales increased 3.9% at Petsmart (PETM) in its first quarter ended May 3, 2009. With 1137 stores in the US and Canada and a 13% share of the pet market, Petsmart’s results reflect America’s unbreakable love affair with our pets. At 14 times forward earnings, it’s really not even that expensive.
Another interesting name in this space is PetMeds Express (PETS). The upstart online discount retailer of pet medicines continues to show impressive growth. Sales grew 19% in their fourth quarter ended March 31, 2009 and earnings per share are expected to grow 10% this fiscal year to $1.09. At $13 after backing out the almost $2 in net cash and investments on its whistle clean balance sheet, this fast growing small cap is trading for only 12 times forward earnings.
Weekly Returns (7/6-7/10)
Top Gun: -0.74%
YTD Returns (through 7/10)
Top Gun: +11.48%
Founder & CEO
A Registered Investment Advisor
9700 Village Center Drive #50H
Granite Bay CA 95746