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My Gut Feeling for Today, September 27, 2013

The S&P 500 (SPX) broke its losing streak yesterday. Today’s open seems to have the debt ceiling jitters priced into it again. Normally, I would expect buying on the penultimate day of a month. However, the debt situation in Dysfunction Junction is likely to quash the market bid I expected today as we head into the weekend. All that this Washington Kabuki Theater is doing is building up pent-up demand for stocks. Thus, eventually once the debt ceiling is increased, buyers will step up in force.

One a micro basis, there are a few stories to tell. It will be these stories and individual situations which will spur trader or investor interest while Washington fiddles.

Yesterday, Hertz (HTZ) threw a strong punch to the stomach as the company lowered guidance. For me this turned a nice profit into a loss. It happens. I am not giving up on the company and would add on further weakness. In the process, I have lowered my 2013 price target to $27.50 and 2014 price target to $32.50.

Also yesterday, Nike (NKE) reported earnings which far exceeded expectations. That stock is set to rally about 7% and I suspect it will spread positive pin action to Dicks Sporting Goods (DKS).

JC Penney (JCP) announced a large secondary stock sale for about $1 billion.  It is clear that the company is in deep trouble. Its debt to equity ratio is very high and this stock offering will have a huge dilutive effect on shareholders. The market cap of JC Penney stands at about $2.3 billion prior to the secondary. The best move that Bill Ackman’s Pershing Square hedge fund made was selling its JCP stock at around $12.50. Of course the worst move he made was to buy the stock at about $25. With the new secondary, the stock is certain to break below $10 and should now be in the death spiral.

Speaking of death spiral, Blackberry (BBRY) reported another dismal quarter. The $9 Fairfax Financial takeover is in trouble. Still, the loss which was not as deep as Wall Street expected is triggering some short covering in the stock. I would just avoid Blackberry and use the company as a real time case study for my business students at Seton Hall University.

As we enter the quarter end on Monday, I am sitting on around 3% in cash.  I have very little impetus to take on any new positions or sell any existing positions. Have a great weekend.

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Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView AssetManagement, LLC was long DKS and HTZ— although positions can change at any time.                                                                                        

Scott Rothbort is also the publisher of the LakeView Restaurant & Food Chain Report, a newsletter focusing in on food, restaurant and agricultural stocks. You can subscribe at www.restaurantstox.com 

Interact all day with Scott all day with your Platinum subscription to Wall Street All-Stars.

You can email Scott at scottallstars@gmail.com

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