Have you ever heard of Costar Group (CSGP)? No?
Well, you may have seen the Apartments.com commercials featuring actor Jeff Goldblum during and after this year’s Super Bowl. Or if you’re associated with the commercial real estate business in any way, you might have used the firm’s industry research or online tools to buy and sell properties.
Mike’s Moves to Make
Buy: Conservative, highly rated stocks in sectors like consumer staples and tech, as well as defense; Inverse ETFs or puts on vulnerable stocks in autos, real estate, and related sectors
Sell: Real estate and auto shares, deep cyclicals, small cap ETFs and mutual funds
Anyway, the $6 billion market cap firm reported a big jump in adjusted third-quarter earnings – to $36 million, or $1.11 per share, from $17 million, or 53 cents per share, a year ago. Revenue rose more than 12% to $213 million.
But the stock couldn’t get out of its own way. It collapsed almost $17, or 8%, a few days ago after the news was released, then fell even further to a six-month low.
Or how about Credit Acceptance Corporation (CACC)? You might not have heard of this auto lender, either, since its market capitalization is only $3.4 billion. It reported earnings on Tuesday, saying adjusted net income rose to $92.4 million, or $4.53 per share, from $78.9 million, or $3.77 per share, in the year-ago period.
But if you owned its shares, you suffered one heck of an earnings hangover on Wednesday. That’s because they plunged more than $22, or 12%, to a nearly 20-month low.
Jones Lang LaSalle (JLL), with a market cap of $4.1 billion, is another smaller stock worth mentioning. The commercial real estate brokerage, advisory, and research firm said revenue climbed to $1.71 billion from $1.5 billion in the most recent quarter.
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It called out supposedly encouraging developments in real estate leasing, facilities management, and advisory and consulting. But the stock got crushed after the report, dropping almost 7% on Wednesday to the lowest since October 2013.
Then there’s LendingTree (TREE), a $953 million market cap company that links banks offering a wide variety of loans, from mortgages to car loans, with customers seeking them online. Things didn’t work out too well for its investors after the company released third-quarter results. Its shares tanked more than 15% in a single day.
What’s the message here? Why are these developments so disturbing?
Well, mainstream media pundits spend all their time talking about the same old stocks – the big-cap names everyone knows. But I like to do a much deeper dive into the markets. That’s because I want to find less obvious profit opportunities for you, as well as steer you well away from potentially serious losses.
For instance, if you peer behind the curtain at JLL, you see that incentive fees dropped and EPS missed estimates. Look behind the headlines at CACC, and you see that rising auto loan delinquencies and weak recovery rates are spooking investors. As for TREE, it actually cut its full-year revenue forecast.
These kinds of news items only further confirm the thesis I shared with you several months ago: The epic easy credit cycle that prevailed from 2009-mid-2015 is turning, and in a big way. That means credit-sensitive industries and companies — as well as investors in credit-sensitive stocks — are going to get crushed!
You can see more fingerprints of this unfolding crisis in the economic data, too. The ADP Employment report on Wednesday showed the construction sector lost another 15,000 jobs in October. That continues a string of lousy jobs figures out of that sector since the spring. What’s more, we just learned that construction spending fell on a year-over-year basis in September. The last time that happened? At the tail end of the Great Recession.
|Regarding autos, October sales reports showed declines across the board.|
When it comes to autos, October’s monthly sales reports showed declines across the board, too. Sales at General Motors (GM) were down 1.7% from a year earlier. Sales at Nissan Motors (NSANY) dropped 2.2%. Honda Motor (HMC) sales fell 4.2% … Toyota Motor (TM) sales dropped 8.7% … Fiat Chrysler Automobiles (FCAU) sales slid 10.3% … and Ford Motor (F) sales tanked 12%. But Volkswagen AG (VLKAY) really took the cake, with sales plunging 18.5%.
My ongoing advice: Avoid, sell, short, or buy put options on vulnerable companies in these sectors. That’s what I’m recommending to subscribers in my All Weather Trader service, and they’ve done very well this year following my guidance.
Also, understand that these are two of the most important sectors overall. They helped drive the U.S. economic rebound and the broader averages for the past few years. But now that they’re taking on so much water, it’s hurting the broader market.
The S&P 500 lost 1.9% in October, and has now given up every penny of gains since June. Plus, the broader Russell 2000 Index got crushed, dropping 4.8% last month. That was the worst monthly decline since January, and it pushed the index ever closer to unchanged on the year.
Bottom line: There’s a potentially disturbing message coming from the markets. Make sure you pay attention to it, and take steps to protect yourself (and profit) from its repercussions.
That’s my take anyway. What’s yours? Are the problems in smaller-cap stocks like those I mentioned, as well as the deterioration in the broader averages, major “sell” signals? If so, how low do you think stocks could go? Alternatively, are there other sectors you’re more bullish on? Let me hear about it in the comment section below.
Until next time,