Trading Range Leads To Stockpicker’s Market

The market’s refusal to set on a clear course in either direction demonstrates the level of uncertainty now confronting the economy and investors. Whereas many pundits had previously posited economic recovery was clearly at hand, the latest round of economic data and indicators are forcing a double-take at such a hastily drawn conclusion. Today, the latest report to give cause for caution came from the housing sector as homebuilders’ confidence fell to levels last seen during the height of the financial crisis due to concern over the tax credit expiration.

Additionally, earnings reports have been spotty with some notable disappointments mixed in with the expected upbeat forecasts. Just hours ago, International Business Machines (IBM) reported a second consecutive decline in services revenue, indicating that a rebound in corporate spending is not yet upon us.

Do we have a better handle on which way the economy and markets are going to head from here? Sadly, no. Thus we continue to focus on finding specific value situations and refrain from making bets that hinge on calling the macro situation correctly.

In recent weeks, we have opened several new positions in stocks. However, the market’s trading range has precluded us from adding more to these positions.

The market’s continued downward drift has added significant new names to our watchlist, with two more making this week’s list. Both stocks are retailers, one operating in the food segment and the other in clothing/fashion. ┬áThe grocer carries much higher capital costs and thus delivers lower returns while the clothing retailer’s prime task is managing its brands and inventory which requires less capital investment.

Another point to take into consideration is the admonition from noted value investor, Mohnish Pabrai, to never invest in a retailer. Today’s top trends are tomorrow’s faux pas and predicting which will prevail is a fool’s errand for most, decidedly non-fashionable investors.

[This post is excerpted from the latest watchlist article from EA-Premium.]

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