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The Day Ahead: The Hannibal Lecter Investing Toolkit

Far be it from me to rain on the mental parade that probably began for you on Thursday, when we saw some decent market gains after a number of dreadful sessions on robust volume. But did you see that Thursday selloff? Listen, instead of staying in a mental rut, I suggest you become as angry as Hannibal Lecter in order to bring clarity to the stocks you are holding. Doing so will help you cut through the musings of the fee collectors and view present holdings -- and those spied as opportunities -- in the type of light that is necessary in a market that, frankly, is depressing to track day to day.

Allow me to demonstrate how I use anger and knowledge to analyze three Dow component stocks that have had horrible years: McDonald's (MCD - Get Report), Caterpillar (CAT - Get Report), and Boeing (BA - Get Report).

Hannibal Lecter Macro Checklist

  • China is worsening. The true growth rate may be 2% less than the 7.5% "base case" nonsense that flies around the market.
  • The European Central Bank could keep its European Stability Mechanism and verbal promises -- on the ground that reads continue to indicate no improvement in end-market demand.
  • Against a tepid U.S.-growth backdrop, pricing power could mean fewer promotions relative to a competitor, as opposed to price increases being announced and then passed through.
  • McDonald's

    The cheerful folk trumpet the McDonald's dividend, its global reach and "low-earnings-expectations hurdle bar" as tasty ingredients to buy the stock. A Hannibal Lecter-oriented investor will seek to profit from the real story on McDonald's over the next three to six months, to be realistic on time horizon: valuation risk based on fundamental trends.

    These include the following:

  • Unlike Yum! Brands (YUM), which is notching success in the U.S. with fewer promotions, McDonald's customers are seeking deeper value, and that weighs on margins.
  • The market went yippy for McDonalds' last sales report, but I think it was inflated by the Olympics, and that the core trend in Europe and elsewhere overseas is much softer.
  • McDonald's is investing aggressively to remodel and open new stores, and that is against headwinds from items higher up the income statement.
  • Caterpillar

    How could this stock be approachable, given the following?

  • The company has only now opted to curtail production, likely in order to sop up excess inventory caused by converging slowing economies.
  • The company is probably sitting on a downward revision to its guidance that it boldly raised back in the second quarter -- following a weird cut to its 2015 outlook.
  • Boeing

    The angry investor is fully aware that the company's exposure to the government, and quantification as a capital-goods play, has dented appetite for the stock. But, in contrast to McDonalds and Caterpillar, Boeing has catalysts.

  • The largest part of the business, commercial aircrafts, is winning new orders.
  • The 787 is moving quicker off the assembly line.
  • Alcoa (AA) reserved its positive comments for aerospace.
  • There is a massive share repo plan in the fold.
  • Boeing, I can warm to.

    Special Note: 'Tout' TheStreet

    TheStreet did its inaugural Tout Thursday, and we will be fine-tuning it in the weeks ahead. What's cool is that you can Tout at us. The app, which you can download on your smartphone or tablet, is free, fun, and a wonderful platform on which you can be heard. I want to help, so "Tout" at me on Twitter and via TheStreet's feed. Feel free to voice any investing problems or moments of investing rage -- or anything else related to making money and not losing it all. Try and include a clever hash tag.
    At the time of publication, Sozzi had no positions in the stocks mentioned, although positions may change at any time.

    Brian Sozzi is Chief Equities Analyst for NBG Productions. In this capacity, he is responsible for developing independent financial content and actionable stock recommendations (including ratings and price targets) for an institutional and retail investor base. In addition, Sozzi is the Editor in Chief of the "Decoding Wall St." investor education online platform.

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    Chart of I:DJI
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