While all of the indices have been pulled down in total, not all stocks are following suite. There is a clear distinction between those companies reporting solid earnings and giving positive guidance and having their stock prices move to the upside vs. those companies that miss expectations. Just take a look at the restaurant sector.
Buffalo Wild Wings BWLD (which we own in the DWCM Fund) and Chipotle Mexican Grill CMG (own in personal account) were both crushed over the past few weeks when they reported disappointing earnings. On the other hand a stock that we have followed closely over the years, Panera Bread PNRA continues to power up close to its all time high.
This is just one example of exploring one industry and finding distinct contradictions. Restaurant stocks would seem to be vulnerable in an economic slow down especially with the fiscal cliff approaching. However American consumers can prove to be extremely resilient. Once you think that they are left on the sidelines they come back and find a way to spend.
With that in mind, we added to our position of BWLD this week when it was down over 11% in one day. We believe that BWLD can continue to grow throughout the current economic uncertainty although maybe at a slower pace than it has in recent years. We're not going to let that scare us away from this company that still has good growth potential and solid fundamentals. We would also look to begin a position in PNRA at as reasonable price.
During this market correction over the past 5 weeks the DWCM Fund is down about 5.5% which has been slightly worse than the four major equity benchmarks. Most of the pain has been in our largest holding Apple AAPL. While Apple reported good numbers this week, iPad sales were a disappointment which help push the stock lower. Apple is down near the $600 level from its all time high of just over $700 which it broke through in mid September. The question to ask is if this poses a buying opportunity?
If you like Apple and believe in its growth story and continued dominance, obviously it is cheaper today than it was a month ago. There is more and more stiff competition when it comes to technology products from the likes of Samsung, Microsoft, and Google. Since Apple is already our largest holding in the DWCM Fund, we would not be adding to our current position now. However a bigger pullback would make for a compelling buy.
The Week Ahead
It will once again be a week of waiting until the highly anticipated jobs report this Friday. What makes this report even more hyped is that it comes just days before Americans go to the polls to elect a President. A lower unemployment number could help Obama stay in the White House vs. a higher number possibly giving momentum to Romney.
Besides the jobs report, this week also has an abundance of economic data. When you combine all of the economic data with a continuation of earnings releases you could have a very volatile week with markets going up or down.
As we have stressed previously now is a good time to have your watchlist handy as a stock sell off can become obsessive and create buying opportunities.
- Mon - Personal Income and Outlays, Dallas Fed Mfg Survey
- Tue - Redbook, S&P Case-Shiller HPI, Consumer Confidence, State Street Investor Confidence Index
- Wed - ADP Employment Report, Chicago PMI
- Thu - Motor Vehicle Sales, Challenger Job-Cut Report, Jobless Claims, Productivity and Costs, PMI Manufacturing Index, ISM Mfg Index
- Fri - Employment Situation, Factory Orders
Have a Great week!
DreamWorks Capital Management
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