Good morning to all. A lot of disappointing news out this morning, but we are lucky to be well positioned in a good one. We got involved in an Overnight Trade with Whirlpool yesterday. I got in at 88.50. The company this morning reported a solid EPS at 2.64 vs. the expected 2.13 and increasing heavily over last year’s EPS of 1.04. Revenue increased more than 8% year-over-year as well. Whirlpool even raised their full year outlook, but with the rest of the market being as it is, WHR is sitting pretty much neutral but closed up a little over 3% from my entry. I will be exiting within the first five minutes of today’s session.
Let’s get into two plays for today…
Buy Pick of the Day: Seagate Technology Inc. (STX)
Analysis: The report on the right side is from Interactive Data Corp. The company does surveys, graphs, charts, forecasts, etc. of everything technology. In Q2 of 2010, the company reports that PC sales rose 22% year-over-year. That is a significant growth in sales for a slow month to buy laptops and PCs from April to June. This growth, among other computers and server-type products, has led to some outstanding earnings from PC supplying companies, such as semiconductors, analog devices, and data storage. One such company, which is reporting earnings this afternoon, is Seagate Technology Inc. (STX).
Seagate is a data storage company that manufactures and sells hard disk drives. Seagate supplies HP, Dell, Apple, Acer, and many more. The company is one of the top dogs in data storage devices, and they should benefit from a great tech season so far. The company is expected to report earnings at 0.77, which will be a great increase over the EPS one year ago at 0.05. 
The company is also been rising into earnings, but they have slipped this morning with the market’s woes.
That is why STX holds such an opportunity. It is a company that should follow in line with the other tech companies that have been doing exceptional, and investors should be buying it up into earnings. Yet, it has fallen on its face a bit this morning as a result of a few giants’ struggles. So, we want to take full advantage of this opportunity and buy some of it up. I am expecting a nice big gain from this company today as it moves into earnings. Other DSD companies have had great earnings already in the past month, and STX is well diversified across the PC market.
Technically, STX was on a bullish run, moving up just over 10% two weeks ago to last week, but it has fallen a bit with the bears as of late. This has put towards the middle of its bollinger bands and brought its RSI back to even. With this morning’s fall, STX is actually a bit undervalued and closer to that lower band, which gives rise to the reason why we should buy it. It should not be there, and other will realize it as well.
Get in early as I think some stocks will give back losses pretty quickly.
Entry: We are looking to get involved from 13.90 – 14.05.
Exit: We are looking to exit for a 2-3% gain.
Stop Loss: 3% on bottom.
Short Sale of the Day: Hovnanian Enterprises Inc. (HOV)
Analysis: Oh residential construction. You are no fun. This morning, the housing starts report revealed some very awful news. New houses are being built at the same levels again as last October before the homebuyer credit really took hold. The month of June saw the homebuyer tax credit disappear, and real demand return. There were only 550,000 homes.png)
started in June, compared to 590,000 in May. The number was 20,000 less than expected as well.
This statistic does not bode well at all for construction companies. If there are no houses being built than how can these companies be making money…they cannot. The housing market has not been booming as of late, but the sector got some rises as the market moved up over the past couple weeks. While most of these companies still sit pretty undervalued, Hovnanian Enterprises Inc. (HOV) sits closest to fair valued and closest to its upper bollinger band.
This means that HOV should be set for the largest decline among its peers. There is literally nothing good coming out for the housing market currently. The taxbuyer home credit renewal took these stocks up slightly, but until we see employment improving at significant rates and demand returning, it will still be a long road.
Technically, HOV is again slightly undervalued, but in the middle of its two bands. On fast stochastics, the company does show it is moving into oversold territory, but it has a ways to go still.
I am getting involved in this one right away at the beginning of the day as long as it is not below 3.60.
Good luck!
Entry: We are looking to enter HOV at the start of the session – range: 3.65 – 3.75.
Exit: 2-4% to cover.
Stop Buy: 3% on top of entry.
Good Investing,
David Ristau
