Turning Point for Consumer Discretionary Sector?

The S&P 500 seemed to hit a wall at 1800, retreating after the all-time, but rebounded to close only 0.38% down. It could be just a pause or it could be a bit more serious due the plethora of earnings reports this week from the Consumer Discretionary sector. Today, URBN began what will be a veritable deluge of retail sector earnings reports this week. URBN beat on both top and bottom with double digit revenue growth from several of its key chains, Free People (30%) and Anthropologie (13%), beating earnings estimates by $0.02 and issuing strong guidance. The bad news is the not only did the stock fall 1.3% today, but it is also down another 2.6% in the after-market. Tomorrow, we get CPB, BBY, HD, TJX and DKS before the market opens. During the remainder of week, we get LOWE, JCP, WMT, FL, GPS, GME, ROST, P, SPLS, TGT and WSM. That should paint the retail picture for us by week’s end. Other important earnings will come from DE, MDT, ADSK, ARUN. Today we got decent results from TSN, but it was still down in the after-market. CRM delivered a rather shaky report, deserving its 3% fall during market hours and additional 1% fall after hours.

New highs were reached last week just about everywhere, led by Mid Cap Growth, up a solid 2.44%.Even the trailing style/cap Small-cap Value was up a full percent. The market showed strong bullish tendencies with growth leading value in each cap/style. The sector leaders were growth stalwarts Energy, Consumer Cyclicals, Healthcare, Technology and Industrials, all up more than 1.5%. But even Basic Materials, which was the worst, gained 0.3%.

Market Stats

It could have been a topping week with fairly strong volume and the myriad of new highs. A number of the economic indicators last week were a bit disappointing, led by Industrial Production off -0.1% vs. an expected 0.3%. Initial Jobless Claims were a bit worse than expected, and the Trade Balance was also worse than expected. Retail Sales on Wednesday may help point the near term direction along with Leading Indicators on Thursday. But the bevy of retailer earnings reports along with management’s guidance should tell us how the economy is doing--and more importantly, what the investor reaction to it will presage near term market behavior!

Keep in mind that the government shutdown loomed on the horizon during the end of the quarter and may have taken its toll on shopping enthusiasm. There are lot headwinds ahead as congress resumes its gridlock. Perhaps the election results will stimulate a better attitude. We will see. With valuations up a bit more, it could be that at least a small selloff is due. Or Icahn’s warning that what earnings growth we have had has been (in his words) “due to the very low interest rates”… which will likely rise in months ahead, could stoke a full blown pullback.

Be cautious my friends.

3 Stock Ideas for this Market

I selected the following stocks from a custom search looking for undervalued growth stocks with recent upward analyst revisions in MyStockFinder (*all data below from Yahoo! Finance):

Blackstone Financial Group LP (BX) –Financials

Trading for 24x current earnings estimates and 9x forward earnings estimates
Positive earnings surprise in last three quarters
Analysts have revised earnings estimates up for next quarter in last 30 days
8.5% projected EPS growth for current quarter, 22.9% next year, 16% over the next 5 years

Actavis plc (ACT)—Healthcare

Trading for 12x forward earnings estimates
Nearly all covering analysts have revised EPS estimates up in last 30 days
90% projected EPS growth for the current quarter, 55% this year, 22% over the next 5 years

Nu Skin Enterprises Inc (NUS)—Non-Cyclical Consumer

Trading for 23x current earnings estimates and 16x forward earnings estimates
Analysts revised EPS estimates up in last 30 days
95% projected EPS growth for the current quarter, 67% this year, 28% over the next 5 years