Slow Start to the New Year
After an incredible finish to 2013 sparked by the Federal Reserve’s tapering announcement, the market took a well-deserved breather today. There was no real driving factor behind the decline, as Wall Street came back to work to solid economic data and few news headlines.
December ISM manufacturing data was very strong at 57.0, with new orders at the highest level since February 2010. There was no surge in interest rates either, with the 10-year Treasury dipping below 3%. While we did see some weakness in European markets, both Italian and Spanish bond yields were down on the day so there was no sign of any flare up in the European debt action.
I chalk today’s decline up to some profit taking, with much of the gains made between Christmas and New Year’s largely gone. However, I do believe the market is due a further pullback in the near term, so I’ll continue to watch developments closely and maintain our Breakout strategy of protecting profits and investing in new stocks that have clear catalysts in place.
With the stock market still in holiday mode, there has not been a lot of news on our companies, but I do have two updates to share with you before we take a look at how our Breakout Buy List wrapped up 2013.
FLWS Hit By Delivery Delays
1-800-Flowers.com (FLWS) got caught up in UPS’ well-publicized delivery issues last week, and many of the company’s customers did not get their gifts delivered on time. While this is absolutely no reflection on FLWS (several other companies like Amazon.com had the same issue), there will be some financial price to pay, since FLWS and the other vendors were forced to offer compensation in the form of discounts to unhappy customers.
Although the timing is not great given that this is FLWS’ most seasonally critical quarter, I do not believe the overall amount of compensation will have an overly significant impact on earnings since the problems seemed to be confined to some last-minute shoppers. Plus, investors will primarily be focused on the company’s top-line performance, and expenses related to the gift card issuance will be considered a non-recurring expense.
Despite the rocky finish to the year, FLWS has held most of the gains it made in December. Since I don’t believe the delivery issues will have a major impact on the shares going forward, I recommend that you use current weakness to buy FLWS below $5.25.
JOEZ Quiet Ahead of Earnings
Joe’s Jeans (JOEZ) was one of the few stocks on our Buy List that did not enjoy a strong December performance, with shares instead languishing around $1.10. We may not see a significant move in the stock until the company reports results for its fiscal fourth quarter, which ended on November 30. Although JOEZ has yet to release an earnings date, the company did not report until the end of February last year, so we can expect a similar timeline this year.
The quarter will likely be viewed as a transitional one, as it is the first since JOEZ acquired Hudson Clothing. The most important thing I’ll be looking for is if the results back-up management’s belief that the acquisition will avoid cannibalizing sales between the two brands.
I expect the company will be successful with this, which is why I continue to like the stock. Current prices are providing a bargain buying opportunity ahead of a potential post-earnings rally. Buy JOEZ under $1.25.
A Look Back
It was a great year for our Breakout stocks in 2013, as we closed out 26 winners and just two losses, with 20 of those gains coming in over 30%. We were busy up to the very last minute, locking in quick 33% profits in Monster Worldwide (MWW) on New Year’s Eve. (If you missed the Flash Alert, you can read it here.)
The favorable market environment certainly helped buoy my recommendations, but most of them also outpaced our Russell 2000 benchmark. Investing in stocks with individual catalysts rather than those that trade based on market conditions was an important strategy for us in 2013, and will remain a key part of our approach to what’s ahead in 2014.
As we look to keep these profits rolling, I’ll have a new list of Top Quarterly Buys for you in next week’s update. Plus, I’ll also do a full review of our Buy List and share my outlook for each stock as we head into a new year.
Sincerely,
Hilary Kramer
Editor, Breakout Stocks Under $10