7/29/2013 Comments

Pending home sales pull back in June as rates rise

Contracts to purchase previously owned U.S. homes fell in June, retreating from a more than six-year high touched the prior month, suggesting rising mortgage rates were starting to dampen home sales.

While this sounds negative, as someone mentioned in the comments, the headline could read "Compared to last year contracts were up 10.9 percent, despite higher rates."  Then again, I might read that as being just a bit overly positive.  Yes, it's more than last year; but perhaps the more important fact is that it is down from the previous month.

Are Stocks Heading for a 1987-Style Crash?

Enjoy your summer.

Thanks, I will, although I think that ending line was meant to be somewhat ominous.  It might have been if the article had actually pointed out some reasons why we might be heading toward a 1987-style crash other than "the market went up a lot."  But, you know, these days it's all about quantity, which is why I'm not very successful.  I try to produce a quality product knowing that in the short run I could do better focusing on quantity.

I've fallen behind on my coverage, so here are some recent stories for stocks I'm covering.  I'll be working on getting more articles written on these and other stocks in the coming weeks.

Harley-Davidson Posts Second-Quarter 2013 Earnings, Revenue And Retail Motorcycle Sales Growth 


Arrow Reports $5.2 Million Profit, Solid Second Quarter Results


Finish Line Declares Quarterly Cash Dividend

Stanley Furniture Company Announces Second Quarter 2013 Operating Results 

Yeah, that wasn't really a disappointment at all

FINL announced earnings that beat expectations so it looks like I was mistaken about the disappointing first half.  At this point, I don't know if I'm changing my outlook or not, so stay tuned.

Earnings and a buyback

Here's the latest news about 2 stocks I've started covering.

The Finish Line (FINL)

In my article on Seeking Alpha, I expressed the opinion that the first half of this year was likely to be a disappointment to investors.  The stock closed today at $21.20, roughly even with the price on the day I first wrote about it.  My expectation has been, and continues to be, that results will disappoint investors in the near term, but towards the end of the year, I think the Macy's (M) deal will begin to show positive results.  At this point, I'm not sure whether that disappointment is already priced into the stock, and it's true, there might even be a positive surprise when the company announces.  After all, Nike (NKE) posted strong results, which could bode well for FINL.  Until I see the results, I still have a 12 month price target of about $23.30.  That could change, depending on earnings.

Trans World Entertainment (TWMC)

When I wrote about TWMC, I estimated the shares to be worth about $7 and the stock was trading at around $4.70.  The company has a pile of cash, and I believe will likely generate more despite (or more correctly because of) declining sales, and I expected that the company would return some of that cash to investors.  Today, TWMC announced a tender offer for $25 million worth of common stock at a price between $4.50 and $5.10 in a modified dutch auction.  TWMC closed at $5, up about 6% since I first wrote about it.

That's the news

Don’t Look at Bernanke, China Is Driving This Meltdown

In a world of uncertainty cash is king.

Well, no.  In case nobody noticed, the world is always an uncertain place and if you kept your money in cash, your returns would be, well, 0.  The one thing that investors should always remember is that higher returns = higher risk.  Unfortunately, most investors don't seem to realize there's risk in stocks until it's too late.  Now that I've got the preaching out of the way, though, it's time to get optimistic.  Perhaps this is what those sidelined investors have been waiting for.  The only question is, "How far does the market have to drop?"  Okay, that's not the only question.  But, it's the one I'm asking right now.

Financial crises may call for easier monetary policies: Fed's Dudley

The Taylor Rule governs the relationship between economic slack and inflation, and assumes a 2.25-percent real interest rate when policy is neutral. But Dudley said that rate is likely "considerably lower" if financial instability is impairing the effectiveness of Fed policy.

So, as near as I can tell, this is saying that most of the "rules" are changeable depending on current conditions.  Unfortunately, most people don't see it that way.  A rule is a rule, well, unless it's a law and you're a congressman.  For what it's worth, I've never seen an economic rule that holds no matter what the conditions are.  So, nothing new here.

The Fed "needs to be willing to respond to limit financial market bubbles from developing in the first place," Dudley said.

I wonder how long it took for anybody to come to that realization.  Hmmm.  Limit financial bubbles from developing in the first place.  Nah, it's way more fun to wait and see what happens when they pop.

Analysts Weigh Nike’s Prospects Ahead Of Earnings
I wasn't so much interested in what this article had to say about Nike, but more about what the implications might be for The Finish Line (FINL).

On the positive, basketball continues to be a key growth driver, while running, after having decelerated, is showing improvement; however, higher price points (e.g. $160 Flyknit) seem to be pressing the limits of consumer demand. That said, growth in running is being helped by the increased distribution in run specialty stores as opposed to the mall.

Although FINL operates in mall-based specialty stores, the company is more focused on running, and does run some running specialty stores which are not mall-based.  I'm not sure that being "mall-based" is a key issue anyway.  At any rate, it appears this should be somewhat of a positive for FINL, although I don't expect anything particularly great from the next quarter's results.  

The Finish Line Focus Article

Just published "Finish Line: A Weak First Half May Produce Significant Buying Opportunities" over on Seeking Alpha.  Check it out!