This article originally appeared on RealMoney.com on Sept. 5, 2014 at 10:00 a.m. To read more content like this AND see inside Jim Cramer's multi-million dollar portfolio for FREE... Click Here NOW.
The Labor Department jobs report missed consensus for August, and the ADP numbers were also on the soft. With these figures thrown into the mix, the U.S. economy is throwing off conflicting signs, making the investment process ever more difficult. Personally, I think this mixed bag puts a premium on buying leading businesses in their respective sectors -- those companies with best-in-class operating margins and management teams whose interests are truly aligned with those of shareholders.
In any case, here are some areas that may trigger confusion.
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Restaurant stocks: The North American restaurants total return index, per Bloomberg data, is down 4.55% this year, trailing the S&P 500's roughly 9% total return. The index began to lag the S&P in April thanks to worse-than-expected customer traffic in the first half of the year. Is this index a leading or lagging indicator? Beats me. I just think its performance stands in such stark contrast to the rising broader market, and to domestic-macro-economy enthusiasm among geeky chief economists, that it's worth mentioning. This is also worth considering when you're researching companies with a gaze into 2015.
Cruise line operators: Check the backlog. I came out as bullish on cruise line stocks a while back, and these stocks have continued to push higher. Aside from the fact that new and fancier ships are set to arrive to market this year and next, companies such as Norwegian (NCLH) and Royal Caribbean (RCL) are revitalizing older vessels. And, believe me, people are spending more per visit as a result of upgraded dining and entertainment amenities. Given the weak traffic and stock prices for restaurants, this doesn't make a ton of sense, does it?
If you have scooped up some cruise-line shares based on my advice, I suggest booking profits. I think most of the players have done the media rounds to hype their new initiatives, and there is rising risk in Europe, where the eurozone may be entering another recession just as cruise lines are moving their ships to the market. A total of 26 new ships will arrive between 2014 and 2018, and that could trigger the type of competitive pricing that is no longer factored into stock valuations.
Retailers: As I wrote earlier in the week, retailers were likely to handily beat their August sales plans amid a demand surge during back-to-school and Labor Day sales in the final two weeks of the month. So people are spending on clothing when they have to, then hibernating. Got it.
Nonetheless, look for upgrades in the specialty-apparel arena within the next few days. Sector inventory levels are thinning out, and new online initiatives such as ship-from-store are starting to remove the focus from the earnings risk inherent in operating large physical store networks. In addition, promotional cadence has stabilized -- though, overall, the environment remains promotional, even in spite of an improved job market. It must be that weak credit growth Bill Gross mentioned in his latest client letter.
As an Aside
I interview a ton of interesting executives, some for on-camera interview, some for phone interviews and some for research reports. While my level of access to people may be a bit different from yours, I highly encourage you to study executives on a purely human level. Listen to their tone on earnings calls in response to certain questions. Watch their body language in TV interviews.
I can't tell you how critical this analytical tool is. For me, a person's handshake and eye contact, and how they carry themselves -- and even the question of whether they arrive to a destination with an entourage -- have always been secret weapons in my analytical arsenal.
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