The Day Ahead: Secrets of a Mad, Mad Scientist

"The man of mystery": That's how I look at one of the non-goats from the 2012 Ryder Cup, Jason Dufner. I am convinced the guy does dip, but he is known for displaying next to no emotion on the golf course -- though I did notice a sign of facial expression from this stoic man during the Ryder Cup as he generally rolled over his bilingual European counterparts.

I am similar in this respect -- on most occasions, you will never be completely sure what I am thinking, though have gained a reputation on my ball team for, umm, being a seriously intense and vocal dugout member. Nonetheless, along the course of this week, I was pressed to divulge more of my specific stock-market ideas, and that struck a nerve for these simple reasons. It's not who I am, it's not what I am going to do, and frankly it's not what I am pouring my heart into every day as I attempt to teach interested investors in a 24/7 news cycle, wherever my name may sprout.

Do I have a core set of ideas? Sure -- it's the pitchman aspect that was drilled into my head on the sell side. But I would rather come to the table for a discussion with strong, coherent arguments on stocks and markets, as opposed to matters that don't live up to my high standards. I would sure hope you also have high standards here, beginning with the formulation of macroeconomic and company-specific ideas -- and right on up to the point you decide to pull the trigger, be it long or short.

Unfortunately, at this particular moment, I have taken the bait on offering an idea dump. Full blame goes to the typical build of internal intensity during earnings season prep -- and feeling the aftereffects of voluminous caffeine intake. So below, right here, you'll see the majority of the notes, simplified and edited for cohesiveness, right from my manual.

What I Hear Too Much Of

  • There's uber attention on third-quarter earnings, except for the fact that financials and technology are down year over year. More focus has to be on revenue and its components -- that is, volume, prices and currency. Revenue was the negative surprise factor in the second quarter.
  • Dry power, dry powder, dry powder: Yes, got it. One place where excess money at non-bucket shops could wind up is restaurants. Private equity loves 'em. DineEquity (DIN) has been acting interesting of late. After the restructuring of subsidiary Applebee's, this would be a pay-up to own a good chunk of Middle America quick casual dining.
  • Fiscal cliff: Yup, we see you -- or do we? None of the impact, psychological (among consumers) or actual, has been priced into valuations whatsoever, as machines drive trading. That will be a problem as I run through financial statements.

Macro Fun

  • Won't China markets have to discount all of the bad news when investors return? How will that weigh on global markets?
  • ADP should no longer front-run the nonfarm payrolls report to help its marketing department; the release should be the same day as that of the Labor Department. By the way, downward revisions in the latest ADP report are not good. I wonder how the revisions will look after August, when the estimate on new jobs in June and July was reduced by 41,000.
  • There was strong improvement in new orders in the Institute for Supply Management nonmanufacturing index, but the employment component fell. Weird.

Dot-Connecting/Research to Conduct

  • I'm seeing ugly action in suppliers to department stores Maidenform (MFB), Perry Ellis (PERY), Carter's (CRI) and Fifth & Pacific (FNP) -- especially the latter post-earnings. It'd be best to circle back on Macy's (M), which has ridden pretty high following second-quarter earnings (surprised me).
  • Wells Fargo (WFC) strikes me as a name to own not only since the stock has outperformed its peers amid the mini market retrace, but as a pure way to tap in to robust refinance and mortgage demand trends. Evidence for robustness: homebuilder backlogs.
  • If we are to believe the positive attributes of the ISM nonmanufacturing number, why are we missing good moves in transports UPS (UPS) and FedEx (FDX) on supposedly "cheaper" valuations? Hmm.
  • Waiting for a Harley Davidson (HOG) earnings miss/warning.
  • It's a positive indication that homebuilders bounced on the refinance data. This shows there is appetite after recent sector downgrades. Is this a near-term bottom?
  • Not sold on the Best Buy (BBY) buyout. It's an eager party, for sure, but potentially one who dumps his stake as a way of preserving family wealth, instead of losing a chunk of it to the mystical powers of Amazon's (AMZN) tech department.
  • American Eagle (AEO) on a drop after the dividend payout, as it's this company's holiday to lose among teen-apparel retailers.
  • Hewlett Packard (HPQ) is cutting its printer units by 50% in 2013. That's welcome news to the ears of buying teams at office supplies retailers Office Depot (ODP), Staples (SPLS), and Office Max (OMX). Now, that is money saved to delay the inevitable.
At the time of publication, Sozzi had no positions in the stock 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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