Tuesday, July 24, 2012

Poor Manufacturing Numbers - Good for the Market?

A slew of manufacturing numbers from around the globe were released in the last few hours. And the overwhelming theme was deceleration (except China).

China HSBC Flash PMI for the month of July was 49.5, a boost from the 48.2 reading a month earlier and the best level since February. This can be viewed in two ways. One it shows that the easing measures taken by China have helped improve the number. The other way to view it is that the number remains below 50 and shows demand and employment is still too low for the likes of the government. Even though the latter is negative, it does open the door for more easing, which should lead to improvement in the number and a higher stock market.

The Eurozone Flash PMI fell to 44.1 in July from 45.1 in June, hitting a new 37 month low. The silver lining is that the Services PMI is at a 4 month high of 47.6. The number should be of no surprise given the situation in the Eurozone.

The July Flash PMI in the US fell to 51.8 from 52.9 in June. Output and New Orders also fell from the prior month. The lone bright spot was Employment, which recorded an increase to 52.9 from 52.8 in June.

Considering all the numbers from around the world are not where they should be, it does open the door for more coordinated quantitative easing and stimulus packages. It has been working in China and the EU is more than likely going to be forced to do more, and the US now has the ability to implement QE3. The combination will result in a stock market rally the investors do not want to miss out on.


Home Prices Rise for First time in 5 Years

According to the Zillow Home Value Index, prices for home in the US rose by 0.2% year/year in the second quarter for its first gain since 2007. The average price for a home is now $149,300 and the increase was brought on by a boost in demand for homes, record low interest rates, and a tight supply of properties for sale.

Zillow goes on to say, " The solid Q2 in the midst of economic headwinds indicates the housing market has some organic fundamental strength on its own."

The homebuilders and related stocks have been outperformers this year and got a boost yesterday when Goldman Sachs upgraded the sector.

Some of our favorite homebuilders include: Lennar ($LEN), Toll Brothers ($TOL), along with two ETFs ($XHB and $ITB).

Monday, July 23, 2012

Homebuilders Rise as Market Tumbles - Time to BUY!!

An upgrade from Goldman Sachs helped propel the Homebuilders sector higher on Monday even as the overall market fell by over 1%. The firm upgraded the sector to Attractive from Neutral and cited the beginning of a long-term positive trend for the stocks.

Here are some of the positive factors Goldman believes the sector has and my thoughts in parentheses:

  • Renewed home price appreciation (likely considering prices are at or near multi-year lows).
  • 2011-1H12 job growth supports 200,000 more new home sales without further job adds (this I do not totally agree with because I am not sure where a big increase in home sales comes from without new jobs).
  • shadow supply has declined significantly, lowering the risk of another price shock (this is true and puts a bottom underneath current prices, thus limiting downside).
  • housing policy has been supportive since August 2011 and should remain so (well the government tried, but failed; however low interest rates by the Fed help keep mortgage rates at all-time lows that is a plus).

MDC Holdings ($MDC) was put on the Conviction Buy List and is up 5.6%. The SPDR S&P Homebuilders ETF ($XHB) is down 0.3% and the iShares US Home Construction ETF ($ITB) is up 0.2%.

Holding Up in a Sea of Red - Bonds and Dollar

There are not many stocks/ETFs that are holding their head above water today with the major US indices down nearly 2%. The selling has been fueled by heightened concerns in Europe, in particular Spain (poor GDP) and Greece (needs even more time).

Other than the inverse ETFs that move in the opposite direction of the index they track, the few bright spots today are Bond ETFs and the US Dollar ETF. With the Euro falling to a new 2-year low versus the greenback the PowerShares US Dollar Index Bullish ETF ($UUP) is up 0.50% to a new one-year high.

As far as bonds, the iShares Barclays 20+ Year Treasury ETF ($TLT) is up 1% and at the best level ever. Joining treasuries at a new all-time high is the Market Vectors High Yield Muni Bond ETF ($HYD), which is gaining 0.25%.

Corporate bonds are down slightly (-0.1%) as measured by $LQD and the Mortgage REIT ETF ($REM) is also holding up well with a loss of 0.3%.


Spanish Ship Sinking the World

A worse than expected GDP number out of Spain overnight has led to mass selling of equities in the country. The selling did not stop there as its European neighbors have followed the lead.

Spanish GDP -0.4% Q/Q in Q2, the Bank of Spain estimates vs. -0.3% in Q1. This marks the third straight quarter of negative growth. After the news hit the yield on the 10-year bond spiked. It was last up 23 basis points to nearly 7.50%. The word on the street that yields above 7.0% were not sustainable. It will be interesting to see if Spain has to ask for more of a bailout? Or does the country survive with such high yields?

The reason the yield is important is because that is the rate that the country must borrow money. The higher the yield, the higher the interest payment and for country's already in trouble, a spike in yields could cause a default.

One silver lining is the Eurostat release of EU debt numbers today. The report shows government debt to GDP ratios for all EU countries. The worst is Greece with a 132.4% reading, but Spain falls in the middle with 13 countries with worse ratios. Spain is currently at 72.1%.

The Spain ETF ($EWP) is set to open lower along with the SPDR S&P 500 ETF ($SPY). The futures in the US are pointing to a loss on the open of 1.3%.

Friday, July 20, 2012

Jeremy Lin Leaving NY - Good for Stocks?

When New York Knick fan favorite Jeremy Lin made his first start on 2/9/12 the price of Madison Square Garden ($MSG) shares were $29.49. In the following months the stock took off and rose as high as $39.57 in early July even though the team was not successful in the NBA playoffs. Since that time the stock has been down 11 out of 12 days as there was speculation, which became reality, that Lin was going to leave the Knicks for another basketball team.

The 30% rally from the time Lin started to the recent high easily outpaced the gain of only 2% for the S&P 500. So was the rise in the stock that owns the NBA's New York Knicks based on a no-name guy from Harvard that started less than 30 games?

There are many that believe so and that is why the stock has taken such a hit in the last two weeks. I on the other hand never bought into what was termed, "Linsanity". I feel it is a great move the over-hyped player is gone and it will eventually be a boost for the shares of $MSG. By not matching a ridiculous $25 million offer for Lin, the Knicks made some fans angry, but financially it was a great move.

As a matter of fact buying near $35, closed today at $35.27, is a solid investment for long-term investors. Let the Houston Rockets deal with the unnecessary hype that this kid from Harvard that will be a bust brings to town.


Two New IPOs Rocking Today

Facebook who??

Two technology IPOs are rocking and rolling today after they began trading for the first time as public companies.

Palo Alto ($PANW) a security software company and travel company Kayak Software Corp ($KYAK) are both up big in their first few hours of trading. Add that to yesterday's strong debut for retailer Five Below ($FIVE) and it was a decent week for IPOs. And next week looks like it will be active as well with 8 more names ready to hit the public markets.

A name that I know and love because of their great food and wine is Del Friscos Restaurant Group; the stock will begin trading next week.

The First Trust IPOX 100 ETF ($FPX) is down 0.6% today but has been in a solid uptrend over the last 6 weeks. The new IPOs this week are not in the ETF yet, but will most likely be added when the portfolio is rebalanced.

Chipotle Drags Down Entire Sector -Time to Buy Starbucks

Chipotle's ($CMG) revenue miss this past quarter was enough to hammer the widely-loved stocks price in early trading. At last check the stock is losing nearly 1/4 of its value as investors worry about slowing customer traffic and potentially higher food costs.

It is amazing how a stock gets crushed even though revenue rose by 21%, however it missed expectations by 2%. This is the stock market world we live in these days and why we must always do as much homework as possible to avoid a $CMG situation.

The unexpected negative news out of $CMG has taken its toll on other big name stocks in the sector. Dunkin' Brands ($DNKN) down 5%, Brinker International ($EAT) down 4.5%, Panera ($PNRA) down 5%, and Starbucks ($SBUX) down 4%. I am not sure what burritos have to do with coffee? Even the potential of rising input prices will not hurt Starbucks as much because their big cost is coffee beans, not commodities affected by the US drought.

We already own Starbucks for clients and look as today's sell-off as a buying opportunity for the stock as well as others in the sector.

Thursday, July 19, 2012

Airline Stocks Fall on Rise in Oil - Buy Now?

The airline stocks as measured by the Guggenheim Airline ETF ($FAA) are down over 2% today and have fallen 5% in the last 3 sessions from a multi-month high. The number cause has been a 15% rise in the price of light sweet crude oil in the last 2 weeks.

One of my favorite names in the airline sector, US Airways Group ($LCC) is down over 6% today and has lost 13% of its value in the last week. Last Thursday LCC closed at its best level since early 2008, now it is struggling to stay above its 50-day moving average.

The correlation between airline stocks and the price of oil is clear. If you feel oil is going to fall, a smart play would be $FAA or some of the better acting airline stocks. On the flip side, if you believe in $125/barrel oil in the coming months, please avoid the airline stocks.

I personal feel oil will be in the triple digits, however the price of black gold will fluctuate and when the triple digits arrive it will likely create an attractive buying opportunity for airline stocks. Therefore my strategy is to be patient and look for lower prices in the sector.

Millionaires Buy Stocks, Average Joe Buys Bonds

Millionaires added U.S. stocks more than any other asset in the latest year as average investors fled to bonds, according to a survey by Fidelity Investments.

Click to read the full article.

This should not be a big surprise as the average investor typically sells at the bottom and will wait for the news to turn positive before buying. Unfortunately when the headlines are brimming with confidence the stock market has already rallied. This leads to the Average Joe's missing out on making money in the stock market.

When everyone is zigging, you need to zag. Be a contrarian to make money investing.

Why Earnings are Important to Bull Markets

The rally this week to the best level in months for the S&P 500 has been led by better than expected earnings reports out of a large number of influential companies. Yesterday Intel ($INTC) beat estimates and the stock rallied over 3%. Last night after the bell Ebay ($EBAY) also beat and is up over 5% in pre-market trading.

With all the talk about earnings expectations being too high and the fear of the global economy slowing, corporations continue to surprise to the upside.

There are two important lessons to take from the situation.

  • There is a major disconnect between the economic headlines and the stock market. What this means is that if you only read the paper or the internet you would be convinced the stock market has been getting crushed the last couple of years. Where in reality the stock market has more than doubled from the 2009 low.


  • Earnings are important. Investors buy a company based on the earnings and expected earnings. If the S&P 500 companies can report earnings of $105/share for 2012 (it looks like they will and possibly beat that number), it suggests the index should be at an all-time high above 1600 if it were to trade at its average valuation.

Earnings are just one reason I remain bullish on stocks.