The Best of Kass

NEW YORK ( TheStreet) -- Doug Kass of Seabreeze Partners is known for his accurate stock market calls and keen insights into the economy, which he shares with RealMoney Pro readers in his daily trading diary.

Among his posts this past week, Kass explained why Avon and Yahoo! are two stocks that could see gains despite weak fundamentals; why FedEx's recent announcement is worrisome on the economic front; and why Oaktree is an attractive financial stock.

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Good Dogs
Originally published on Friday, Sept. 21 at 9:27 a.m. EDT.
  • Avon and Yahoo! have weak fundamentals but potential share price catalysts.
  • "If every instinct you have is wrong, then the opposite would have to be right."
    -- Jerry Seinfeld to George Costanza (Jason Alexander) in Seinfeld's "The Opposite" episode

    Avon Products ( AVP) and Yahoo! ( YHOO) are two investment dogs, with weak fundamentals but potential share price catalysts.

    In the case of Avon, Coty has already bid nearly $25 a share for the company, only a few months ago. Coty has delayed its IPO until 2013, and, in all likelihood, its interest would only resurface after an IPO.

    Nevertheless, the share price is low, and I like the risk/reward ratio.

    In the case of Yahoo!, hedge-hogger Dan Loeb is a significant shareholder (and board member) who seems to be guiding the company in making the right moves (asset sales, Mayer appointment as CEO, etc.) and, to me, is likely to be a responsible and value-creation-oriented steward for all Yahoo! shareholders.

    At the time of publication, Kass was long AVP and YHOO common; long AVP calls.

    Another Sign of Stagflation
    Originally published on Wednesday, Sept. 19 at 10:43 a.m. EDT.
  • Let's dive deeper into FedEx's recent announcement.
  • In an earlier column I suggested that stagflation is knocking at our door.

    To illustrate that case, let's take deeper dive into economic bellwether FedEx's ( FDX) announcement yesterday in which the company reduced its EPS guidance for its May 2013 year from a range between $6.90 and $7.40 to a range between $6.20 and $6.60.

    In doing so, the company pared back its June forecast for 2013 U.S. real GDP to +1.9% from +2.4% and reduced its projections for global real GDP growth for this year and next year to +2.3% and +2.7%, respectively, from +2.4% and +3.0%, respectively.

    So slowing growth is seen by FedEx, but, at the same time, in support of my stagflation thesis (knocking at the door), the company announced an increase in shipping rates to +5.9% on Jan. 7, 2013, though lowering of the fuel surcharge will reduce this to a +3.9% increase.

    That's stagflation.

    Meanwhile FedEx's CEO seems to agree with me that China is the canary in the coal mine. He said in the release, "The locomotive that has driven China's growth is its export industry" but the situation in Europe, as well as tepid growth in the U.S., is sapping steam from it.

    According to Smith, demand from Chinese consumers "is not increasing at a significant rate, contrary to everybody's hopes" and he is "somewhat amused" by observers of China who "completely underestimate" the impact of China's export slowdown.

    At the time of publication, Kass had no positions in securities mentioned.

    Optimistic on Oaktree
    Originally published on Friday, Sept. 21 at 8:37 a.m. EDT.
  • Oaktree's defensive approach to investing seems ideal for the investment challenges ahead.
  • My view continues to be that Oaktree's ( OAK) shares are cheap relative to other financials and to the broader market. Moreover, in the rough market terrain I see ahead, Oaktree's defensive and preservation-of-capital approach to investing seems to ideally position the asset manager for the investment challenges ahead.

    Oaktree is my second-largest long, behind AIG ( AIG), reflecting its superior management team and excellence in investment management.

    Below is Citigroup's take on Oaktree (reiterates Overweight) from this morning:
    "Recent meetings with Oaktree management reiterate our belief that its distressed funds are operating in a strong realization environment, paving the way for Opps VIIb to pay carry in 2Q13. While current fundraising efforts are below the 07/08 peak and AuM growth near-term could lag some peers -- an area of investor concern -- Matt sees newer efforts such as real estate beginning to pick up steam and potential upside if distressed conditions become more prevalent."

    At the time of publication, Kass was long OAK and AIG common; short AIG puts.

    Doug Kass is the president of Seabreeze Partners Management Inc. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.