Two Stocks on our Buy LIst

The markets are holding steady an hour into trading based on a strong Jobs Number released from ADP ahead of tomorrow's government number. The 215 jobs created in December, according to the report, was the highest since February. This puts the total jobs created in 2012 at 1.7 million, even as manufacturing jobs continue to be lost (6 consecutive months).

The S&P 500 is currently down 0.2%, an impressive feat considering the big rally yesterday and the talk of profit-taking in the last few hours. I do believe the market continues to move higher, however the odds of a pullback are above average. We continue to build our Buy List and will look to allocate more cash into new stocks/ETFs in the coming weeks.

Here are two examples of stocks that are on the potential Buy List:

1. Walker & Dunlop ($WD)- Provides commercial real estate financial services for owners and developers of commercial real estate in the US. Stock is breaking out of consolidation pattern and has an attractive PEG ratio of 1.08.
2. Oceaneering International ($OII) - Offshore drilling company should see a boost in 2013. The chart is similar to $WD and is breaking out. The PEG ratio is 1.05 and the stock pays a 1.4% dividend.

Market Recap - Now What?

The only news that really mattered today was the Fiscal Cliff deal that sent stocks higher on the first trading day of the year. (More on the Fiscal Cliff deal in a previous blog post.)

A late day surge in equities put the US stock indices near the best levels of the day when the closing bell rang. The S&P 500 closed up 2.5% at 1462, only a few points away from a new 5-year high. The small-cap index, the Russell 2000, shot up 2.8% and closed at the best level ever!

Small-Caps Lead - Leading the way in the Russell 2000 were:

• Zipcar ($ZIP) - Company being bought by Avis Budget Group ($CAR) for a huge premium and the stock rallied 48%.
• Carriage Services ($CSV) - The morbid operator of death-based services hit a new multi-year high today with a gain of 13%.
• Marlin Business Services ($MRLN) - The commercial equipment financing company rallied 10% and is closing in on a new all-time high.

Best Performing Country ETFs - The SPDR S&P 500 ETF ($SPY) that tracks the US market was up 2.5%, but a handful of other countries did even better on the first day of trading in 2013.

• Market Vectors Vietnam ETF ($VNM) - rallied 5.3% and closed at a multi-month high as money found its way into the "risky" country.
• Global X FTSE Argentina ETF ($ARGT) - another risky and underperforming country is Argentina and today saw a bounce of 4.3%.
• Market Vectors Egypt ETF ($EGPT) - the rollercoaster ride that is Egypt followed the path of the first two countries with an oversold bounce of 3.8%.
• iShares Mexico ETF ($EWW) - even thought Mexico did not keep up with the US today, the country's ETF closed at the best level ever after rallying 1.8%!

Now What? - Time to sell or is it time to ride this wave of buying? That was the number one question I received today from individual investors. My gut reaction to hold for the rest of this week as I believe there will be continued buying into the weekend. At that point I will have a couple days to analyze the charts and some individual stocks/ETFs to make a better determination of the next move in the market. I continue to feel new all-time highs will be set on the major US stock indices and therefore the bias will remain bullish. The only difference could be some selling of lagging positions into the recent rally to free up cash for new and better opportunities. Stay tuned.

ETF Portfolio Updates

The New ETF Bulletin that was launched on 6/8/12 ended the year on a strong note. The 2 ETF-Only Portfolios are both well positioned to continue their strong performance in 2013 and beyond.

The ETF Rotation Portfolio is an all-ETF portfolio that uses a mixture of the PFG Top-Down Approach and Technical Analysis to position the portfolio in a way that attempts to beat the market in both up and down trends. Since it began on 6/8/12 the ETF portfolio is up 10.67% versus a gain of 7.57% for the S&P 500.

The 3.1% out performance in less than 3 months is significant in nature. And when considering the lowest amount of cash the portfolio had all year was 16.7% at year-end, the risk-adjusted out performance is even more impressive.

The chart below shows the path the ETF Portfolio has taken to beat the S&P 500. They key was not falling as hard during the November sell-off. This allows a portfolio to snap back much easier when the selling ends.

 

The other portfolio, ETF Income Portfolio, has an objective of generating income for investors. The current yield on the portfolio is 6.0%, well above the 10-year treasury and most corporate bonds. The gain for the portfolio since 6/8/12 was 6.05%. Not surprising the portfolio is lagging the S&P 500 this year. The goal is not to beat the market; the goal is to provided steady above-average income with the potential to capture some of the upside of the stock market and more importantly to hold up better during any market sell-offs.

Take a look at the performance chart below. Besides the sell-off in November the Income Portfolio has been moving slow and steady, just as we designed.

 

If anyone is interested in learning more about The ETF Bulletin and would like access to the ETFs that make up the 2 portfolios please inquire at info@pennfinancialgroup.com or call 877-383-7366.

Not only do you get the 2 portfolios, but also real-time emails when to buy/sell the ETFs we cover.

AND for investors that sign up in the next 2 weeks you will get the 10+ page PFG Client 2013 Market Outlook with stock and ETF picks for the new year.

Happy New Year!

Team PFG

Fiscal Cliff Deal Kicks off 2013

Stocks surge to a gain of 2% during the first few hours of trading in 2013. The catalyst is none other than the resolution of the Fiscal Cliff that has been looming over the market for over a month.

While the news was taken as a positive by investors, there is still a lot that needs to get done in regards to the U.S. economy. The deficit is still an issue and the big headline we will be dealing with next is the Debt Ceiling debate.

With that being said, I expect the market to hold onto the gains today on the back of the Fiscal Cliff news, however the rally may be short-lived as investors begin to focus on the Debt Ceiling. I expect heavy volatility in January and the pullbacks should be used as buying opportunities.

Market Wrap - Home Prices, Growth Slowing, and Stock of the Day

Stocks across the board closed lower with the S&P 500 falling by 0.5% and the tech-heavy NASDAQ holding up a little better with a loss of 0.3%.

The SPDR Gold ETF ($GLD) lost 0.4% and the US Oil ETF ($USO) gave back 0.7%.

• The bears can thank Congress and the Fiscal Cliff for the afternoon selling binge that took stocks from unchanged to the red. When politicians come out and say there is no room being made in regards to the fiscal cliff it is never good for stocks. That is exactly what happened during the 2pm hour and why stocks gave back some of the gains from last week.
• Before the opening bell the OECD slashed global growth estimates for 2013 and 2014. For 2013 the organization see growth of 2.9% versus previous estimates of 3.4% for the global economy. In 2013 the economy is expected to grow by 3.4%, however that is lower than the 4.2% they predicted in May. The OECD sees the US growing by 2.0% next year IF they take care of the fiscal cliff situation. The Eurozone will stay in recession according to the OECD and will contract by 0.1% in 2013 before returning to growth in 2014 with a gain of 1.3%.
• Home prices rise in the month of September by 3% year-over-year according to Case-Shiller. Prices are now 26% off their 2006 peak. The 3% increase is the largest annual jump since July 2010 and the streak of increasing prices is now at 6 months. The iShares Dow Jones Home Construction ETF ($ITB) closed with a gain of 0.1% on the day.
• Some top performing stocks and ETFs we follow at PFG:
• Cree ($CREE) up 3.4%
• iPath Grains ETN ($JJG) up 2.1%
• Linn Energy ($LINE) up 1.0%
• Dillard's ($DDS) up 2.2%
• CAI International ($CAP) up 1.6%
• Trex ($TREX) up 0.8%
• Stock of the Day: Visa ($V) was down 0.3%, but is only two days removed from an all-time high and if the holiday sales number continue to impress it should be a boost for the credit card company.

Stocks Remain Attractive

In the last few weeks the estimates for 2013 earnings for the S&P 500 have come down slightly based on a poll of a number of analysts. This is never a good thing, however even with lowered expectations the market is trading at extremely attractive levels based on historical numbers.

The consensus estimate for 2013 is $113 in earnings for the S&P 500. Based on today's closing price the index is trading with P/E ratio of 12.37 using the estimate. The current 2014 estimate is for earnings to jump into the mid-$120's. Anyway you slice it, the market is CHEAP based on the futures earnings estimates.

The key word here is "estimates". The number can change dramatically if the US falls off the fiscal cliff or if Europe goes deep into a double dip recession. But, even if 2013 drops to $105 in earnings, the S&P 500 is still only posted a P/E ratio of 13.31.

THE BOTTOMLINE: Stocks are cheap if you are a long-term investor.

Market Recap - Romney Bounce?

Romney Bounce 
Was the stock market bounce during the last three hours of trading driven by something more than just late day buying? Or was it the fact that traders were betting on a Romney victory tomorrow to push stocks higher? Honestly, it was probably a few traders betting on Romney, but with such low volume the market can be moved easily. We will know more about what the market thinks during tomorrow's trading session. Regardless of who you are voting for, stocks would prefer a more "market friendly" Romney in the short-term.

S&P Holding Support
The  S&P 500 continues to hold support above the 1400 area with a low today of 1408 before bouncing and closing at 1417, up 3 points. Tomorrow will likely see more below average volume as traders wait for the announcement of the leader of the free world for the next 4 years. As long as the index can continue to trade above support the longer term uptrend remains intact and investors need to be leaning heavily to the bullish side.

Utilities Not Holding Support
One sector that has been lagging the overall market and is breaking through support is the Utilities. The SPDR Utilities ETF (XLU) was down 1.6% today is trading that the lowest level in 5 months. Even though the ETF offers an attractive dividend yield of 3.6%, the high valuation (for utilities) is too much for investors to ignore. There is also the fact investors are willing to take more risk today than they were last year and will prefer avoid the "safe" sectors such as utilities and consumer staples. I will continue to underweight the sector for the near future.

Falling Oil Good for Airlines
The price of oil bounced 1% today, but this is after falling about 15% in the last 6 weeks. This is good for anyone filling up their tanks (that is assuming you can get gas in the Northeast) and especially the airlines. Even Superstorm Sandy could not hold back the Airline stocks. Today the Guggenheim Airline ETF (FAA) gained 1.0% and is closing in on a 4-month high. We recommended buying FAA in our ETF Bulletin newsletter for subscribers in late September and the ETF is up 5% since that email alert.

**For more info on the ETF Bulletin newsletter please email info@pennfinancialgroup.com or call 1-877-383-7366