Hunting for Long-Term Opportunities This Week
John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
After months of a ceaseless bid higher, have investors finally reached a turning point?
Last Thursday, the Dow Jones Industrial Average shed 353.87 points, or 2.3%, the biggest percentage drop since November 2011. The sell-off arrived following a Federal Reserve press release which stated the government will continue its $85 billion-a-month stimulus program.
Investors looked past the Fed statement, realizing the monetary stimulus will begin to wind down later in the year. The Fed’s next meeting will take place in July.
In my opinion, the rally we’ve seen in 2013 has been heavily driven by artificial liquidity. As the government begins to pull away the underlying support, we could see a change in market sentiment.
As a multi-year investor, I’ll be eager for opportunities following any short-term market shift. Here are a few developing stories to watch this week:
Earnings on Friday, June 28 before market open; EPS $0.16 / Revenue $343.4M
Finish Line (NASDAQ: FINL) is a mall-based retailer of athletic shoes, apparel, and accessories. The Indianapolis-headquartered company has 651 stores in malls across the U.S.
Last September, Finish Line announced it would become the exclusive provider of athletic shoes at Macy’s. This opportunity should provide a long runway of growth for shareholders.
Management expects the Macy’s business will contribute $0.30–$0.35 in earnings per share once the 675 store rollout is completed. For perspective, full-year 2013 and 2014 earnings are modeled at $1.56 and $1.81 respectively. Finish Line will operate leased shoe departments within Macy’s for 450 stores, while the remaining 225 stores will maintain their current form without Finish Line branding.
How should readers play Finish Line for the short- and long-term?
For the current quarter, Wall Street is likely to have a pessimistic attitude heading into Friday’s earnings report. Investors are focused on Finish Line’s same-store sales after competitor Foot Locker posted unchanged sales for May 2013 compared to the prior year. I recommend waiting until after Friday’s report in order to establish a long-term position.
Reviving handset maker
Earnings on Friday, June 28 before market open; EPS $0.04 / Revenue $3.18B
There’s no question that BlackBerry (NASDAQ: BBRY) was late to the party with the introduction of new handsets. Numerous analysts have criticized BlackBerry’s tardiness and inability to compete with the latest Apple iPhone and Google Android devices. However, the Canadian company may be staging a comeback with the new BlackBerry Z10 and Q10.
Recent optimism for strong BlackBerry sales has caused French investment firm Societe Generale (“Soc Gen”) to upgrade the stock two notches to “buy” from a previous “sell” with a $17 price target. Analysts believe that Z10 estimates will beat expectations for the May and August quarters.
The BlackBerry Q10 release was timed as sales of the touch-screen Z10 began to slow, which should be reflected in BlackBerry’s August quarter. The full-keyboard Q10 became available at retailers as recently as June 23.
My personal experience with the new BlackBerry supports Wall Street sentiment. I recently purchased a BlackBerry Q10 for my mother and found the device to be highly impressive.
The bottom line: Even if long-term sales have yet to be seen, I believe BlackBerry will beat estimates when it reports on Friday.
Worldwide athletic leader
Earnings on Thursday, June 27 after market close; EPS $0.75 / Revenue $6.64B
Despite it’s leading market share position, sporting goods maker Nike (NYSE: NKE) is adapting to a new normal of higher expenses with rising labor & material costs. On the revenue front, sales are slowing in growth markets such as China.
For Thursday’s earnings call, investors will be looking for stabilization in China as well as profit margin improvement in Americas and Western Europe. Let’s consider both aspects before reaching a conclusion.
Chinese competitors such as ANTA Sportswear, 361 Degrees, and Xtep International all have reported earnings in the last month. Overall, business is improving compared to the prior quarter but sales remain lower than last year. I expect a similar scenario at Nike; analysts expect sales to grow 1% for the quarter.
Western Europe has been Nike’s least profitable region, but the company is showing positive signs of restructuring. Operating margin has fallen from a high of 22.7% back in 2009 to a low of 14.4% during 2012. Management is committed to restoring profitability in 2013, with margins rebounding to 17.1% during the last quarter.
The bottom line: It’s difficult to capture all of the moving parts at Nike, but I expect an in-line quarter. The stock remains a solid long-term buy, although patient investors may find a better entry point.
Foolish takeaway Market participants often deviate their attention between the present and future, creating opportunities for long-term investors.
Readers might consider BlackBerry, Finish Line, and Nike based on the scenarios above.
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John Macris has no position in any stocks mentioned. The Motley Fool recommends Nike. The Motley Fool owns shares of Nike. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!