5 Things to Watch This Week: Sequester, Energy Drinks, Groupon, Consumer Electronics, and Home Depot
From the country's leading home improvement chain reaching into its orange apron for fresh financials to Washington's sequester countdown, there will be plenty of news waiting to break in the coming days. Let's go over some of the items that will help shape the week that lies ahead on Wall Street.
1. Pluggged In: The two most prolific consumer electronics retail chains report this week, and it won't be pretty.
RadioShack (RSH) reports on Tuesday. The small-box retailer has shifted its focus in recent years. It has moved away from traditional gadgetry, specializing in selling mobile phones. The plan has been murder on margins, and that's why analysts see this once golden star of the strip mall posting a loss for its holiday quarter.
Best Buy (BBY) checks in on Thursday. The superstore chain is holding up better than RadioShack. It's still profitable. However, it too likely saw margins squeezed for the quarter.
Best Buy already calmed investors by announcing that same-store sales were flat during the holiday shopping season, but you know things are bad when posting flat top-line growth is worthy of applause.
2. Doing the Sequester Shuffle: The fiscal cliff wasn't truly averted two months ago. Some of it was merely pushed back, and the hot question on Wall Street is whether politicians can play nice and avoid the sequester by Friday.
A hefty $85 billion in spending cuts -- scaling back spending on everything from defense to domestic programs -- will immediately go into effect on March 1. That's the first step of automatic cuts that would result in $1 trillion in spending whacks over the next decade.
Everyone seems to be pretty much in agreement that the country does need to come closer to balancing its books to avoid becoming the next Greece. There is naturally no consensus on the role that tax policy should play in that, but neither side is exactly overjoyed at the looming cuts.
Expect market volatility this week as the sequester issue is either resolved or kicks in.
3. Homes Sweet Homes: The housing market is bouncing back, and home improvement specialists are cashing in on the rebound.
Hardwood flooring retailer Lumber Liquidators (LL) and wood-alternative decking leader Trex (TREX) reported better than expected results last week, and this week, it will be time for the superstore chains to step up.
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On Monday morning, Lowe's (LOW) reported fourth quarter earnings that beat expectations, giving credit to Superstorm Sandy on the one hand, and and its new pricing strategy on the other. But Lowes is only the country's second largest home improvement retailer: All eyes will be on its larger rival, Home Depot (HD), when the haven of orange aprons reports on Tuesday. Investors may be expecting good things on the heels of the strong showings in the sector so far, but Home Depot will be the one with the final word here.
4. The Monster Under Your Bed: Energy drinks were under fire last year as regulators began to explore the beverages
health risks.
Red Bull is privately held, but its rival Monster Beverage (MNST) is publicly traded on the Nasdaq, where it has been one of the market's hottest stocks in recent years. But it's been proven mortal since some have accused the company's canned drinks of causing a couple of deaths. Monster has a sound defense, but investors are concerned that the reputation of energy drink makers may take a long time to recover.
If that has been affecting sales, we'll find out Wednesday, when Monster Beverage reports its 2012 fourth quarter and full year financial results.
5. Wait -- I Have a Groupon: Daily deals websites were all the rage a couple of years ago, but things haven't been the same since Groupon (GRPN) went public.
Investors and shoppers have lost interest in flash sales, and a shakeout is inevitable as many merchants grow skeptical of the effectiveness of Groupon marketing campaigns.
Groupon has done a smart thing by branching out into new areas. It has a rich Rolodex of local establishments, so why not offer them transaction processing services and other business tools?
Groupon has a lot to prove after seeing its bookings slow in recent quarter, but on Wednesday it will have the opportunity to remind investors that its own stock -- now more than 70 percent off its $20 IPO price -- is the real deal that bargain seekers need to check out.
Motley Fool contributor Rick Aristotle Munarriz has no position in any stocks mentioned. The Motley Fool recommends Home Depot, Lowe's, Lumber Liquidators, Monster Beverage, and Trex. The Motley Fool owns shares of Lumber Liquidators, Monster Beverage, RadioShack, and Trex. The Motley Fool is short RadioShack. Try any of our Foolish newsletter services free for 30 days.
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