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Courtesy of Walter Gault, Communications Editor, Sabrient
Editor’s note: Walt Gault is the guest author this week. David Brown will be back next week.
Today, stocks traded lower for their third straight session. The markets were down on news that China had cut its 2012 growth forecast to an eight-year low of 7.5%. Factory orders came in better-than-expected, albeit -1%, versus the expected -1.6%.
Last week, most of the market moving indicators beat consensus estimates. Total vehicle sales, as well as domestic vehicle sales, were higher by nearly 1 million. Jobless claims continue to remain low, falling to 351K from 353K. Personal income and consumer spending increased. Real U.S. GDP was revised upward to +3.0% from +2.8%. Consumer confidence rose dramatically from 61.5 to 70.8; which is far above October 2011’s reading of 40.9 but still shy of February 2011’s reading of 72.
However, last week brought disappointments as well. The ISM Manufacturing Index fell short of the consensus estimate and a widely expected sharp acceleration. Construction spending fell -0.1%, well short of the expected 1% increase. Durable goods fell -4%.
Technically, the markets achieved some important milestones last week. The Dow traded above 13,000 for the first time in four years, and, perhaps more importantly, posted its fourth consecutive month of positive gains. The S&P 500 logged a gain for the third consecutive month.
Large-cap Growth led the market caps last week with +0.3% gain. All Small-caps and Mid-caps were negative. Cyclical Consumer and Technology led the sectors while Industrials, Basic Materials, and Energy were all down around a -1%. Looking forward, our SectorCast model favors Financials, Basic Materials, Healthcare, and Consumer Cyclicals, though none have great scores.
What more can be said about our current climate? We continue to get mixed batches of economic data. Last week, we got lots of news, some good, some bad. Iran got a record voter turnout (above 60%) for its elections that some say is a sign of stability, and the rumored blast near a Saudi pipeline turned out to be nothing more than Iranian propaganda. European leaders remain divided over the right balance between austerity and measures that will allow for economic growth. Greece is expected to hold national elections in April, an event that could bring high volatility back to the markets again.
What to do? Be patient and continue to watch market moving events (especially employment on Friday), the Greek tragedy, and developments in Iran. This week, I selected four Mid-cap GARP stocks with varying levels of momentum that look strong technically as well. I’d recommend the VIX as a short-term hedge through the use of April calls.
4 Stock Ideas for this Market
This week, I created a custom search with MyStockFinder, emphasizing high value, high growth, and high earnings quality. Here are four stock ideas for your consideration:
EZCORP Inc. (EZPW) – Financials
Gran Tierra Energy Inc. (GTE) – Energy
Icahn Enterprises LP (IEP)—Industrials
Dana Holding Corporation (DAN)—Consumer Cyclicals
Until next week,
Walt Gault
Full disclosure: The author does not hold positions in any of the stocks mentioned in this article.
Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account their personal financial circumstances in acting on any rankings or stock selections provided by Sabrient. Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.
