Hi Traders,
I run vol-adjusted returns on three clocks, one day, five day and 30 day, and I don't put much weight on any single one of them.
The sign across all three is what I'm actually reading.
Red on the day and green on the month is usually a winner catching its breath.
Red on all three is usually a name where somebody still has stock to move, and if you run that across a whole sector you can see who's getting bought and who's getting left inside of a minute.
Coming into this week I figured the semis would hold the bounce off the July 29 low and then stall, which is roughly what they did, with SMH finishing close to unchanged.
Underneath that flat tape, though, the names that got liquidated in July got bought right back. ASML, Teradyne, Lam Research and Micron all closed green on the week, and that pattern reads to me like people climbing back into seats they got knocked out of rather than new money arriving. Applied Materials was the one name in the group nobody wanted, and I'll come back to it.
Love: Cleaning Products and a Clean Breakout
Clorox (CLX) sells bleach, trash bags, wipes and cat litter, and there is nothing exciting about any of it, which is most of the reason I want it.
The chart spent the spring building a tight consolidation and going nowhere.
Then on August 3rd the company reported, edged past estimates on both lines, and guided fiscal 2027 net sales growth of 13 to 14 percent against a Street looking for about 12.8. The next session the stock closed up 6.52 percent at $104.67 on 5.2 million shares against a 90-day average near 2.7 million, and that volume is what makes me take the move seriously. A breakout on half-normal participation is a shrug. This one had real size behind it.
Since then it has done the thing I actually want to see, which is nothing
Seven sessions between 105 and 108, holding the entire gap, giving none of it back. Flags that tight after a move that size tend to resolve the way they came in.
Now, the quarter underneath all that was not pretty on the surface, and if you pull the release you'll find net sales down 2 percent, organic sales down 13, and gross margin off 520 basis points. Most of that is mechanical rather than operational. Roughly 13.5 points of the organic decline is the company lapping last year's ERP-transition shipments, and the margin hit carries the inventory step-up from the GOJO acquisition on top of commodity costs. The fiscal 2027 earnings guide of $5.70 to $6.00 also landed slightly under consensus, which BofA described as low and wide, meaning management left itself plenty of room.
The ownership picture is what really has my attention. Eighteen analysts cover the stock, 13 have it at Hold, five have it at Strong Sell, and not one of them has a buy on it. The mean target sits near $97 and the stock is trading above that, so you have a full desk of people whose numbers are underneath the tape. If the flag holds and the fiscal 2027 guide turns out to be as conservative as it looks, they don't get to sit still, and every one of those revisions has to come from below.
At these levels you're paying about 18 times the midpoint of the range management just guided, collecting a dividend the board raised to $1.25 a quarter, worth roughly 4.7 percent. Staples have been left for dead all year and Clorox has lagged even that group, which is the whole setup in one sentence.
Two things I want you sized for. Management is modeling more than $200 million of inflation in fiscal 2027, better than double its historical range, and the CEO succession is unresolved with Linda Rendle staying on through the transition. Past those, the calendar is quiet until November 3.
Leave: The Best Quarter Nobody Wanted
Applied Materials (AMAT) is red on the day, red on the week and red on the month, the only name in the equipment group that fails all three while ASML, Teradyne, Lam and KLA all finished the week green.
The group got bought.
This one got skipped, one day after the best print it has ever produced, which tells me the problem isn't the business.
What the sellers used is the margin line. Management guided fourth-quarter gross margin to about 50.4 percent, flat with this quarter, because they're eating ramp costs.
They added more than 1,500 people in manufacturing and customer support this quarter and they're building toward doubling quarterly system output by 2028, and that spending shows up before the revenue does.
To be fair to the company, 50.4 percent is still up 230 basis points year over year, so nothing is deteriorating. It's simply the first quarter in a long stretch where the number stops climbing sequentially, and at this multiple that turned out to be enough.
On the multiple, at Friday's close you're paying roughly 46 times trailing earnings for a company whose 10-year average sits near 19. Forward it's about 33, which is the honest counter and the number the bulls will give you, but you only get that if the 2027 estimates come in exactly as modeled. Meanwhile the sell side is trimming. UBS kept its Buy and cut its target, BofA and B. Riley cut theirs, all on the same day the company raised its outlook.
The numbers here were never the issue. Great was already in the price, but when a stock stops paying you for good news, that's your notice.
Take what it gave you and go find the next one.
So there’s my hate and love for the week.
Which one will the crew pick for Monday's Ticker Highlight Show?
Tap this link to join for whatever rate you want and get Monday's option trade.
Enjoy the process,
Tim Colby