As the first quarter slogs to a close with stocks down for the year and the outlook for the rest of the year "murky" at best ("horrifying") at worse it's time to start taking inventory, as they say in the retail industry. There are trades to be had but the real money is going to be made investing at a good price and letting the investment work. It's sort of a waste of time to call Generational Bottoms, there just enough of them. Consumer facing stocks have just been beaten senseless for 3 months; it's time to start looking for opportunities.
Current Situation: The Pain is Real
I don't need to beat it to death again but the pain has been real. Despite decent trailing earnings there's been a lot of caution from the merchants, mostly based on the impact of uncertainty from tariffs and trade wars. We still don't have details on tariffs, and won't until next week if then, but we're already paying for it in sentiment. Consumer Confidence as measured by outlook for next 6 months just hit 12 year lows. Americans are mad and afraid; typically not times when we spend a lot of money.
Walmart kicked off earning's season by warning of a cautious consumer. Since then the company has been pretty quiet but shares of WMT have been sold off as if the company was warning again every day:
So Walmart has been smacked around but that doesn't make it a screaming buy. The stock is coming off a huge heater that took its PE to a pretty frothy 35x. Walmart is still the biggest retailer in the world with shares up 40% over the last 12 months. No one feels a huge need to pile in just yet.
Walmart basically is the American economy. If you move $1 billion of a product a day, every day, you speak for the whole consumer world. That's how the general consumer space looks now; beaten up but not so much that you need to be a hero long. It's a tape which lends itself to malaise.
The rotation out of smaller names has been even more fierce. To take just one consider Victoria's Secret. Last August VSCO hit $16 share on, yup, "economic worries". From August to December VSCO went up over 250%, topping out over $50 in December. On March 11th VSCO finished giving back every penny of the rally.
You don't normally see moves like this in 40 year old underwear companies. If things weren't "great" at VSCO in December it would seem the 68% drop in the stock has priced that in already.
Other names that look more like bottoms than tops come from all over the consumer spectrum. Take a look at an amazing retailer, Williams-Sonoma:
Or how about wildly unappreciated retailer Ollies Factory stores:
Wildly different companies. Totally different customers. There's almost no economy where one of these doesn't work.
Finally how about one entire group of companies, or "fleet" if you will. Take a look at the cruise companies.
These stocks got MURDERED over the quarter, especially Carnival which serves the lowest end... cruiser.
Yet not one of them reported seeing cancellations. Carnival has the longest waitlist at the highest prices in its history. Things just can't be that bad if Americans are spending this much time cruising. It's time to take the other side of the negatives.
The Strategy Now
Optimists usually win in America. We buy weakness and hope to never sell. Which is a strategy, not a suicide pact. This is a time to be patient, selective and over-weighted long.
Basket 1: a List of Stocks I want to swing big on at prices way below where they are now. Even Walmart has a price you have to own it. Where is that? Call it $60. I'd buy Walmart at $60. Which is fine to say but the point of making lists is if Walmart hits $60 I'll be hiding under my desk, crying. That's 25% lower than current levels. If Walmart hits $60 I'll be in cash and fetal.
The list is a little pact. I'm making lists and sharing it with members. Taking the emotion out of it.
Basket 2: 10 Indefensible Stocks.
Last Thursday I shared 10 stocks I was buying at the close that day. Not the most beaten down. Not the most heavily shorted, in most cases. Just 10 stocks where if you talk to most investors they just have interest. Fallen COVID babies, forgotten beloved brands and companies people flat out hate. If and when the consumer bottoms, if we don't have the mega recession being predicted, these stocks are going to rip.
They are viewed with just the right mix of contempt and apathy found only at meaningful market turns. It's not exactly "dumpster diving" but these stocks have all seen more beloved days.
