Consumers: What do they know?
Today's Financial News - Posted May 26, 2009
Consumer sentiment is on the rise, but should it be? “Trend” investors are being led into a trap by some sneaky bears. Pay attention or they will get you too.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): The power of the consumer is amazing. Before today’s opening bell, equity futures looked bleak.
Nuclear testing in North Korea spooked global markets. Housing data showed yet another double-digit decline in home prices. And we are down to the last few days before General Motors’ (NYSE:GM) big June 1 deadline.
But all it took was good news from consumers to get the markets surging by more than 2%. Even though the economic data does not show many signs of a long-term improvement, evangelical announcements of “green shoots” appear more than enough to convince Americans the worst is behind us.
With American sentiment on the rise, it is no wonder one of New York’s biggest movers is smack dab in the thick of the discretionary spending sector.
Take a look at Tween Brands (NYSE:TWB) and its 20% surge today. Shares of the company have nearly doubled in value over the last week after management pulled the curtain on the specialty retailer’s latest quarterly figures, surprising investors with better-than-anticipated results.
Since the March lows, shares of the company have soared by over 400%. A re-branding effort has helped the company’s financial results, but surely a rash of consumer exuberance has helped.
Sell the hype
It is safe to say the same kind of “trend” investors that are boosting up shares of Under Armour (NYSE:UA), Sirius XM Radio (NASDAQ:SIRI) and Crocs (NASDAQ:CROX) are creating a top-heavy valuation for Tween.
Certainly, management has done good things with its recent attempts to “re-value” its Justice brand, but after the recent run, any negative turn in consumer spending could send this volatile small cap into a tailspin.
With a share price of over $5 per share, Tween is ripe for a short position. Investors have an opportunity at double-digit profits by riding shares down to a more appropriate short-term valuation of $4 per share.
Even though today’s report from the Conference Board shows Americans are more upbeat than a month ago does not mean the macro-economic factors tugging at this market have suddenly vanished.
Unemployment is still high. Houses are still shedding value. And Americans are still scared out of their collective minds.
As the green shoots slowly turn into tumbleweed during the summer months, Americans are surely going to realize this is no time to be celebrating.
Shorts may be sweating after the recent surge, but they will have their shot in the spotlight once again real soon.
The equities market can only go so far on expectations of a turnaround. Pretty soon investors are going to demand to see real results. So far, there is no turnaround in sight.
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