Big Moves in Discretionary Names

Highlighted stocks in this post include GameStop Corp. (GME - Analyst Report), Priceline.com Inc. (PCLN - Analyst Report) and Whole Foods, Inc. (WFMI - Snapshot Report).

In a word: Wow. That's how I would describe some of today's moves in certain discretionary names. GameStop (GME - Analyst Report) is up 12%, Priceline.com (PCLN - Analyst Report) is up over 17%, and Whole Foods (WFMI - Snapshot Report) is up over 30%. GameStop pre-announced strong 4th quarter results and 2009 guidance, while Priceline.com and Whole Foods both reported better-than-expected results and guidance.

Readers of the Zacks blog shouldn't be too surprised by these upside moves. For the last few weeks, I've been writing about how expectations for this group are at extremely low levels, and that even so-so news would push the stocks higher.

My view of the group stays the same. I expect to see more upside moves during this earnings season and am less negative on the stocks in the short term. Longer-term, however, discretionary spending is a secular decline and that will negatively affect most consumer discretionary names.

After these big moves, the question to ask is what to do now. I would remain long GameStop. Its results have remained strong throughout this downturn, and its stock was unfairly knocked down.

Priceline.com is tougher call. Its industry is hurting, but PCLN continues to take market share. Management also did a good job of talking down expectations for the 4th quarter, and that helped the company deliver a solid beat. It is best to stay neutral on this one.

Whole Foods' upside was due to solid cost controls. Its sales trends, however, remain weak. Earnings growth will be non-existent for the next 2 years, and its valuation isn't exactly cheap. Today's 30% price spike may be a good time to take profits.

Read the full analyst report on GME

Read the full analyst report on PCLN

Read the full analyst report on WFMI