Are You Ready for Judgment Day? – 07/17/2014

Stocks are valued based upon their ability to generate profits now and into the future. Thus, there is no day on the calendar more vital to where your stock is headed next more than when they report earnings. Truly, that is judgment day.

Too many investors close their eyes and cross their fingers hoping for the best. However, there is a better way to success at this critical time. Both to own more stocks likely to beat and sell those bound to disappoint.

Best,

Steve Reitmeister ( aka Reity…pronounced “Righty” )

Executive Vice President

Zacks Investment Research

Annunci

CWS Market Review – June 27, 2014

June 27, 2014

“And ye shall hear of wars and rumors of wars: see that ye be not troubled: for
all these things must come to pass, but the end is not yet.” – Matthew 24:6

Tomorrow is the 100th anniversary of the assassination of Archduke Franz Ferdinand in Sarajevo. The assassination sparked the July Crisis, which eventually led to the First World War. Once the war started, the New York Stock Exchange decided to close down. No one knew the war would last for so long. Soon traders were meeting outside the exchange to do their business (traders never change, do they?). After four months, the NYSE relented and reopened for business.

One hundred years ago today, the Dow Jones Industrial Average was around 80 (it’s not exactly comparable with today’s index, but close enough for our purposes). Since then, the index has doubled, doubled again, doubled again, and doubled four more times — and is close to doubling a fifth time. Last Friday, the Dow reached a new all-time high and came within 22 points of cracking 17,000.

It’s been a good century for investors. Of course, 100 years is, shall we say, a rather optimistic time horizon for an individual investor, but my point is to underscore the power of the long term. That’s what stock investing is all about. To quote the Rolling Stones, “time is on my side.” Time is on the side of all disciplined investors, and that was true even when the world was heading towards disaster.

Fortunately for us, we live in a far more peaceful world, but the lessons are the same. In this week’s CWS Market Review, I want discuss the latest mega-deal for one of our Buy List stocks. Oracle (ORCL) is on the merger warpath again, and this time, they’re buying Micros Systems (MCRS) for $5.3 billion.

I’ll also discuss the latest plunge in Bed Bath & Beyond (BBBY). The home furnishing store disappointed Wall Street yet again. The stock dropped more than 7% on Thursday. Here’s the thing: They actually reaffirmed their full-year earnings. I’ll have full details in a bit.

We’ll also look at the horrible GDP revision for Q1. It turns out the economy had its worst quarter in five years. Fortunately, the news looks much better for the rest of this year. I’ll tell you what it all means, but first, what the heck’s going wrong with Bed Bath & Beyond?

Bloodbath & Beyond

After the close on Wednesday, Bed Bath & Beyond (BBBY) reported Q1 earnings of 93 cents per share. This was one penny below Wall Street’s forecast, although it was within the company’s guidance of 92 to 97 cents per share. Quarterly sales rose 1.7% to $2.657 billion, and the all-important metric for retailers, comparable-store sales, was up 0.4%.

In my opinion, this was a mildly disappointing earnings report, but it’s far from a disaster. The market, however, was very displeased. Shares of BBBY dropped as much as 10% on Wednesday, and this came at the top of a very bad six months for them. The stock eventually closed the day at $56.70, for a loss of 7.2%. That’s its lowest close in 16 months. Yuck!

I realize I’m starting to sound like a broken record, but the problems Bed Bath & Beyond is having aren’t nearly as severe as the market’s behavior suggests. Yes, they’re in a rough spot, but they’re still very profitable. Unfortunately, this is how markets often behave — a stock can either do nothing right or do nothing wrong. Wall Street traders don’t exactly have a dimmer switch. The truth is that BBBY is a sound company that’s working through some issues. The company has been making investments to modernize its systems, and that’s cut into profit margins. They’ve also been hurt by a weak housing market. These are temporary factors.

Let’s look at its guidance. For Q2 (June, July, August), BBBY sees earnings ranging between $1.08 and $1.16 per share. Wall Street has been expecting $1.16 per share. That probably explains much of Wednesday’s sell-off. But here’s the important part. They kept their full-year guidance exactly the same, calling for a “mid-single digit” increase in earnings-per-share. BBBY made $4.79 per share last year. If we take “mid-single digits” to mean 4% to 6%, that works out to a range of $4.98 to $5.08 per share. In other words, the stock is now going for roughly 11 times forward earnings.

Here’s another important fact. Compared with last year’s first quarter, BBBY has 7.2% fewer weighted shares outstanding. In English, they’re gobbling up their own stock at a rapid clip. Unlike so many other companies, BBBY is truly reducing their share count. Plus, the company also has zero long-term debt. I apologize for the volatility, but I think this is one worth sticking with. This week, I’m lowering our Buy Below to $61 per share.

The Economy Dropped by 2.9% in Q1

Wall Street was stunned this week when the government dramatically lowered its report for Q1 GDP growth. The Commerce Department now says that the economy shrank by 2.9% in the first three months of this year (note that GDP figures are annualized and after inflation). That’s the worst quarter for the economy in five years.

Two months ago, the initial report for Q1 GDP showed growth of 0.1%. Last month, that was revised to a drop of 1%. Now it’s down to -2.9%. That’s the biggest downward revision between the second and third reports since records began nearly 40 years ago.

Although these numbers are shocking, I’m pretty skeptical. I’m not saying they’re wrong. I’m just saying…it’s complicated. First, let’s remember that this data is a bit old. It’s for Q1, which was January, February and March, and we’re nearly done with Q2. Also, a huge part of the downward revision had to do with healthcare, since Q1 was the quarter of the Obamacare rollout.

But my major concern is that the GDP numbers don’t line up with more recent data that hint at much stronger growth. Last week, I mentioned that some of the regional Fed surveys are quite optimistic. The trend in jobs is slowly improving. We’ll get the June jobs report next Thursday. Several other metrics like consumer confidence, the ISM reports and industrial production have also looked good. If the economy were truly deteriorating, we would see confirmation in other places. The key weak spot continues to be housing (and by extension, places like BBBY), but that should improve as well.

As investors, our concern isn’t the macro economy but corporate profits. Monday is the end of the second quarter, and soon Corporate America will report earnings results. What’s interesting is that this earnings season will be the first one in several quarters in which we haven’t seen forecasts lowered just before earnings came out. As we all know, Wall Street loves playing the game of guiding analysts lower, then beating those much-reduced expectations.

This time, earnings forecasts have come down some, but not much. The consensus on Wall Street is for the S&P 500 to report earnings of $29.40 for Q2 (that’s an index-adjusted figure). That’s down about 2.5% in the last year, which is very small compared with recent quarters. Typically, analysts overestimate early on, and the forecasts are gradually pared back as earnings season approaches. For now, Wall Street expects full-year earnings of $119.60 for the S&P 500, which means the index is going for about 16.4 times this year’s earnings. That’s slightly on the pricey side, but nowhere near bubble territory.

Next week we’ll get important economic reports that should shed some light on how well Q2 went. Next Tuesday, the June ISM report comes out. The ISM reports have improved for the last four months, and I expect another good number. Due to July 4th´s falling on a Friday, the jobs report for June will come out next Thursday. I think we’ll continue to see improvement of 200,000 to 250,000 jobs. The bottom line is that the Q1 GDP report is an outlier, and it’s old news. The recent data suggest that the economy is poised to grow at 3% annually for the next few quarters.

Oracle Buys Micros for $5.3 Billion

We’ve had a rash of deals on our Buy List. First, DirecTV (DTV) and AT&T (T) decided to hook up. Then Medtronic (MDT) did a big deal with Ireland’s Covidien (COV). Now Oracle (ORCL) announces it’s buying Micros Systems (MCRS) for $5.3 billion.

The deal is for $68 per share, which is a modest premium. However, shares of Micros jumped the Tuesday before last, when initial reports of a deal came out. In the last few years, Oracle has been a merger machine. Over the course of a decade, it has shelled out more than $50 billion to buy about 100 companies. Apparently, Larry Ellison isn’t done. This is Oracle’s biggest deal since they snatched up Sun Microsystems for $7.4 billion four years go. In the last 16 months, Oracle has announced 11 deals.

Micros, by the way, has been an amazing performer. In 1988, the shares were going for just 12.5 cents. The buyout price is 544 times that. Not bad for 26 years. The Micros deal is expected to close by the end of the year. Remember, of course, that any deal has the potential of falling through.

Last week, Oracle missed earnings by three cents per share, and the stock got punished. Fortunately, their guidance was a little better. I think this Micros deal is good for Oracle, and I’m pleased to see them on the offensive. Oracle remains a good buy up to $44 per share.

Buy List Update

This Monday is the final day of trading for the first half of the year. I’ll have a complete review of how the Buy List‘s performing. But before then, I can tell you that the Buy List is currently up 1.96% for the year — less than the S&P 500, which has gained 5.89%. Those numbers don’t include dividends. As I’ve mentioned many times, our Buy List has beaten the S&P 500 for the last seven years in a row, and it looks like our streak may be in jeopardy this year. I’m not ready to concede just yet, nor will I depart from our proven strategy, but I want my readers to know exactly where we stand.

Big losers like Bed Bath & Beyond have weighed heavily on our Buy List this year (BBBY is close to a 30% loser YTD). But we’ve also had some bright spots recently. Microsoft (MSFT), for example, just made another multi-year high on Wednesday. Wells Fargo (WFC) is also close to a new high. Ford Motor (F) has shown some strength lately. The automaker just hit an eight-month high on Thursday, and I think it has more room to run. Some of the top bargains on our Buy List include AFLAC (AFL), Ross Stores (ROST), eBay (EBAY) and Cognizant (CTSH).

That’s all for now. Next week will be an unusual week, since July 4th falls on a Friday. The stock market will be closed on Friday, and it closes at 1 p.m. on Thursday. Expect very light volume, however, since it’s the start of the month. We’ll also be getting the big June jobs report on Thursday morning. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

– Eddy

Named by CNN/Money as the best buy-and-hold blogger, Eddy Elfenbein is the editor of Crossing Wall Street. His free Buy List has beaten the S&P 500 for the last seven years in a row. This email was sent by Eddy Elfenbein through Crossing Wall Street.
2223 Ontario Road NW, Washington, DC 20009, USA

Break Up or Break Down? Four Stocks At Critical Levels

Tickers in this Article: UPS, TWC, VZ, WMT

As the S&P 500 makes new highs, these stocks are lagging behind and hesitating near former highs. If these four stocks can break beyond their former highs it will keep the uptrends alive. Failure to reach new highs though will create large topping patterns which will ultimately lead to much lower prices.
Time Warner Cable (NYSE:TWC)

Time Warner Cable (NYSE:TWC) has been struggling to get above the $143 area since March. A break above that threshold on June 6 could be enough to push the stock toward the high at $147.28. The long-term trend is up, but for that to continue, the stock needs to exceed that high watermark. If the price can’t break and hold above $147.28, watch for a retest of $134. Given the long-term trend, the $134 region presents a buying opportunity as strong support is present. On the other hand, if the price continues to decline below $132.58 (April low) a top is in place, and at least a short-term downtrend will be underway.
SEE: Profiting In Bear And Bull Markets

United Postal Service (NYSE:UPS)
United Postal Service (NYSE:UPS) made its last high on December 31, before losing 10% of its value in January. Since February the stock has been climbing back toward the high at $105.37. The strong short-term trend could push the price above the level, continuing the long-term uptrend. Given the sizable correction in January, which was much stronger and quicker than the rally since February, its questionable whether the stock can reach and stay above $105. Buying at this point is a gamble because resistance in the $105 region could force the stock back toward trendline support at $98. The $98 area provides a better entry for the bulls, as it will be along a newly created triangle pattern; risk can be kept quite small with a stop below $96. An upside breakout targets $115, while a break below $96 could push the price to support at $88.
Verizon (NYSE:VZ)
chart
Verizon (NYSE:VZ) has been creeping back up to the October high at $51.49. Despite the breakout of a triangle near the $50 area, the price is still likely to meet resistance near $51.50. If exceeded, expect a test of the April high at $54.31. The triangle is about $8 in height, which, added to the breakout price, gives a target near $57 over the long-term. An inability to climb back above the June high at $50.33 means the triangle stays in place and signals a move back toward the $46 support area. Bulls can go long with a stop below $48, while bears can go short with an initial stop above $51.50.
Walmart (NYSE:WMT)
Walmart (NYSE:WMT) has been moving predominantly sideways since mid-2013. Since February the trend has been up, but $81 is a key resistance area which could halt the rise. The sharp decline off $80 also makes it a likely resistance area. While the price has room to run toward these areas, being long at the top of this large range is risky. It will take very significant volume and momentum to push the price up and out of this range, and currently the signs aren’t there (but they can develop quickly). Waiting for a deeper pullback toward $73 or $72 provides a better buy point, as there is well established support down to $71. The current price isn’t particularly attractive for short positions either; $80 to $81 provides a better short entry, especially if the price tries to move above these areas but quickly fails.
The Bottom Line
Significant highs overhead put these stocks in a precarious position. By not being at new highs, they are already showing signs of relative weakness compared to the broader market (S&P 500) as of late, and deep corrections off the prior high show there is strong resistance in the area of those former highs. Long-term trends remain up, but if bullish on these stocks, waiting for a pullback and a lower risk trade is more prudent than buying at current levels. Bears can look for shorting opportunities if these stocks fail to make new highs or break higher but the breakout quickly fails, which indicates downside to come.

Charts courtesy of Stockcharts.com
Disclosure – At the time of writing, the author did not own shares of any company mentioned in this article.

Trading the Lagging Discretionaries

Tickers in this Article: ISIS, HPQ, SINA, LGF

As the industrial, technology, materials, energy and consumer staples sectors are all trading near highs, the consumer discretionary space is lagging behind. Overall the relative weakness compared to other sectors shows investors and traders are becoming more conservative with this bull market. They realize consumers can’t or won’t continue to buy discretionary goods at the same rate as they were prior, and this leads to a sinking price performance of these stocks. Taking a look at the major holdings in the consumer discretionary ETF, here are stocks holding up well, and not so well.
Consumer Discretionary Select Sector SPDR (ARCA:XLY)

Consumer Discretionary Select Sector SPDR (ARCA:XLY) recently broke above a basing consolidation pattern, between $65 and $62.50, signaling an advance. That advance is likely to meet strong selling pressure in the vicinity of the December and March highs – between $66.85 and $67.85. After a very strong pullback in January the price was able to rally all the way to a new high, but only by a single dollar before retreating again; this shows most of the luster has disappeared from the sector. While a new high is a possibility, other sectors showing relative strength to this one provide better plays for those looking to participate on the long side.
SEE: Profiting In Bear And Bull Markets

Disney (NYSE:DIS)
Disney (NYSE:DIS) accounts for about 6.5% of the holding in XLY, and the stock just created an all time high at $84.39. Disney has been range bound since March, struggling to close above the $83.50. April has seen a number of daily closes above that level, but has so far failed to really break to the upside. A move back below $83 signals the sideways movement is likely to continue, with support between $77.50 and $76.20. A drop below that support region would lead to further downside pressure. The overall uptrend isn’t in danger at this point though; it takes a drop below $70 to bring the long-term uptrend into question. Until that point, holding longs, or buying pull backs remains the play.
Amazon (Nasdaq:AMZN)
chart
Amazon (Nasdaq:AMZN) accounts for 5.7% of the holding in XLY, and has lost more than 20% of its value since the January high at $408.06. This has put the stock in a downtrend, with rallies providing selling or shorting opportunities. When the price dropped below $300 in late April, the selling subsided, so there is strong potential for a short-term rally. The $330 region could provide short-term resistance, but $370 is the major area to watch. If the price rallies back into that region (March high) watch for strong selling (and traders jumping into short positions) as those investors who held through this recent decline look to cut their losses on the rally. There is no downside target, as this stock was trading below $40 in late 2008, rose more than 10-fold since then, but still has a trailing price/earnings ratio of 487, which leaves a lot of downside if company profitability doesn’t pick up in future quarters.
Comcast (Nasdaq:CMCSA)
Comcast (Nasdaq:CMCSA) accounts for 6.79% of the holdings within XLY, and has a price currently in “no man’s land.” The long-term trend remains up, but the price is also trading well below the $55.28 February high. This is reflective of the lagging performance in the sector, and contributes to it. For initiating new positions the stock is unappealing; Disney offers greater relative strength and is therefore a better buy, while Amazon is much weaker providing a better shorting opportunity. For those already in the stock, a rally above the April high at $52.48 should push the price into the the $54.25 to $55.28 resistance area. Given the late stage of the overall bull market, a significant rally above that area would be surprising. A drop back below the May low at $49.16 breaks the long-term trend line. This is a potential stop level on longs, but isn’t shorting opportunity.
The Bottom Line
The consumer discretionary sector as a whole is under pressure as investors realize consumers can’t or won’t continue to spend money at the same rate on discretionary goods. The sector is a big one though, so not every stock is showing signs of weakness. Disney is still trading at all time highs, showing strength within the sector. Amazon has entered a downtrend though, and Comcast is relatively weak and doesn’t provide great opportunities for a move higher or lower. As a whole, the luster has left the sector and better buying opportunities are more abundant in currently stronger sectors, such as energy, consumer staples and materials.

Charts courtesy of Stockcharts.com
Disclosure – At the time of writing, the author did not own shares of any company mentioned in this article.

Do You Know When to Sell? by David Bartosiak – 04/26/2014

That rearview mirror really is 20/20. It’s the land of woulda, coulda, shoulda.

Too often we look at stocks we didn’t buy for whatever reason and get angry. But the real fault lies in not selling at the correct time. As Kenny Roger says:

“You gotta know when to hold ‘em. Know when to fold ‘em.”

We talk so much about when to buy and so little about when to sell. This overlooked side of the equation is just as responsible for your investment performance as the buy side, if not more.

Today I am going to share with you the four rules to selling at the right time, so you’ll know when to take a profit and when to cut your losses.

Rule #1: NEVER Move a Stop-Loss Further Away

How many times have you done this? Put in a stop-loss only to convince yourself later that the stock is going to come back for sure, so you move the stop-loss lower.

Then guess what happens? You get stopped out at a bigger loss.

I only enter trades with a good risk/reward ratio, and if the stock begins to drift toward my risk parameters I cannot alter those parameters. I pretend I’m at a roulette table. Once the dealer swipes their hand over the table, there are no more bets.

Moving my Stop-Loss deeper into the red would skew my risk/reward ratio severely. Not only would I be sabotaging my original trade, I’d be jeopardizing my next trade by taking away capital from my next stock idea. And remember, there are always other ideas. I swallow my pride, take the loss and quickly forget about it as I move on to the next attractive opportunity.

Rule #2: Play With the House’s Money

Don’t be afraid of these Stop-Loss orders. To the contrary, you should embrace them. I could even argue that most of your trades should get stopped out. Blasphemy, right? I know. But you’re looking at it the wrong way.

I move my Stop-Loss to breakeven as soon as possible. Now I’ve taken a trade that originally had a good risk/reward ratio and turned it into the perfect risk/reward ratio. Stock goes up, Stop-Loss at breakeven, my risk is zero and my reward is unlimited.

I am especially talking about high-beta names that move more than the stock market does. The increased volatility lends itself very well to this type of trading.

Rule #3: The Trend is Your Friend

You can chalk this one up right next to “Let the winners run” because it means the same thing. I never sell a stock that’s in an uptrend unless there is negative estimate revisions or bad news/event risk. If a stock is still above its 25 day moving average, then I don’t sell it. Doing so can keep me on the sidelines while the stock keeps on trucking.

I do my homework prior to entering a trade and I know areas of support and resistance where the trend is likely to change, reverse or slow. I keep an eye on these levels and I sell only after I have confirmation of a reversal. I won’t sell unless the downtrend has begun.

Too often investors are quick to take profits and hold on to losers forever. By understanding the trend, you can help yourself avoid this major pitfall of the individual investor.

Rule #4: Treat Every Day Like the First Day

I look at every day on every trade and I ask myself “Would I buy this today?”

If the answer is “No” I sell immediately. Each day I review where the areas of support and resistance are, where my stop-loss is placed and what the trend is telling me. If one variable in my winning stock formula is off, then I adapt my parameters to compensate or I exit the trade.

I use these four rules to tell me when to sell. Just like the buy side of the equation, this is not a perfect science. However, by using these rules I am able to tip the scales in my favor and give myself the highest likelihood of success.

Good Investing,

David

David Bartosiak is Zacks’ resident technical and momentum expert. He selects stocks and delivers daily commentary for our newly launched Zacks Momentum Trader.

Buy When Everyone is Selling by Tracey Ryniec – 04/19/2014

“Buy when everyone is selling.”

Buy When Everyone is Selling

By: Tracey Ryniec

April 19, 2014


How many times have you heard that as stocks are plunging?

I don’t know about you, but it’s easier said than done.

But there’s one group of investors who charge in to buy when stocks are selling off: the corporate insiders.

How do they do it?

They have 2 key advantages over you and I that provide them the edge during uncertain times. If you follow their lead, you can have that edge too.

Two Key Advantages Give Insiders the Edge

1) Key Advantage #1: Insiders Have Information

Everyone knows that information is power.

Who knows more than those who are actually running the company?

The corporate insiders, the CEO, CFO, General Counsels and even the Head of Human Resources know who is getting hired or fired. They know that last month was a record month for sales and that there is a new factory opening in China, which hasn’t been announced publicly yet.

Even better, they can actually purchase their company’s stock, knowing all this information, and it’s perfectly legal.

When corporate insiders get excited about their company’s prospects, you should too.

2) Key Advantage #2: Insiders Know When to Buy

Insiders don’t buy their own shares willy-nilly. As a stock rallies, insiders are likely to stay on the sidelines because their stock is no longer cheap.

Insiders like bargains just like the rest of us.

That’s why during this recent bull market over the last 16 months, the number of insiders buying has fallen compared to the selling. Just like you, the insider doesn’t want to buy an overpriced stock.

But when the company stock sells off, especially in a short period of time, the insider sees it as an opportunity. The insiders want a deal.

This is what happened in August 2011 when the S&P 500 plunged from its April high. In the first nine days of August, 919 insiders at more than 100 different companies jumped in to buy their companies’ shares. It was the largest amount of insider buying since the market bottom in March 2009.

Were they right?

Just six months later, the S&P 500 had rebounded over 15%. Stocks never looked back from that sell off and the S&P has gone on to make dozens of new record highs since then.

And the insiders cashed in.

Are the Insiders About to Jump In Again?

The NASDAQ is down nearly 10% from its recent highs. This is the largest pullback in the NASDAQ in three years.

And some individual stocks have seen an even more significant pullback. Within the NASDAQ 100, 29 of those 100 companies have seen their share price fall more than 20% from their highs.

As we’ve seen, the insiders like to buy when there are dramatic sell offs. When everyone else is selling, they see a bargain. Remember, they have knowledge of what is going on inside the company so they are more optimistic than the rest of us.

Just like in 2011, 2014 is turning out to be an opportunity for insiders.

I’m expecting to see a deluge of insider buying. They love their deals and there haven’t been many chances like this in the last few years.

Are you ready to follow their lead?

Best,

Tracey

Tracey Ryniec is Zacks’ value strategist and is the Editor in Charge of our Insider Trader.