CWS Market Review – August 30, 2013

“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.” – Charles Mackay

August is nearly over, and the market’s blahs may soon come to an end. After Labor Day, all the market big shots head back to the office from their summer retreats in the Hamptons or Martha’s Vineyard. The August mini-slump continued this week as President’s Obama’s plans for an attack on Syria’s chemical-weapons facilities put a damper on stocks. On Wednesday, the S&P 500 fell to an eight-week low.

The market wasn’t really concerned with the fallout from any airstrike; rather, folks looking to unload their positions saw this as good opportunity to move, so they took it. There hasn’t been much news, so it’s easy for market observers to overestimate the importance of the Syria story on the markets.

Despite the sluggish pace of the market this month, there are some emerging trends that I think bode well for the rest of the year. For one, this week we learned on Thursday that government number crunchers revised second-quarter GDP up to 2.5%. The original report from last month was only for 1.7%. This means the economic growth is actually accelerating, albeit quite modestly. One of the best predictors for the economy is the spread between the two- and ten-year Treasury yields, and that’s looking quite good (see below).

On Tuesday, the Conference Board reported that consumer confidence rose to its highest level in five and a half years. This is important, because it tells me that all these “scared ya!” headlines we’ve seen (sequester, taper, Syria, bonds, etc.) aren’t stopping folks from going to the mall. This is especially good news for our retail stocks. Since there hasn’t been much earnings news lately, I’m going to use this issue to run down all of our Buy List stocks and bring you up to speed on each one.

Updates on the Crossing Wall Street Buy List

AFLAC ($AFL) had a decent earnings report last month. The shares ran as high as $63.62 on August 1st but have pulled back below $58 since then. Guidance for Q3 was a bit weak, but it was nothing terrible. In October, I think we can look forward to a modest dividend increase. I still like AFL a lot. To reflect the recent pullback, I’m lowering my Buy Below price on AFLAC to $64 per share.

Bed Bath & Beyond ($BBBY) has been one of our big success stories this year. For the year, BBBY is up more than 32%. The home furnisher is also one of our three Buy List stocks that ends their quarter in August, so we can look forward to another earnings report in September. The company said to expect fiscal Q2 earnings to range between $1.11 and $1.16 per share. BBBY remains a very good buy up to $79 per share.

CA Technologies ($CA) is our #1 performer on the year, with a 35% gain. Even with the big gain this year, the shares still yield 3.4%. This is a good stock to own for investors who don’t like volatility. CA tends to be fairly stable from day to day. The company said it expects full-year earnings between $2.90 and $3.00 per share. CA is a very good buy up to $31 per share.

Cognizant Technology Solutions ($CTSH) may be the best bargain right now on our Buy List. Investors were spooked earlier this year by poor earnings results from CTSH’s competitors. There were also concerns that pending immigration legislation would hurt their business model. The stock was crushed this spring but has come back some. The last earnings report was quite good. I doubt this bargain will last. CTSH is an excellent buy up to $78 per share.

CR Bard ($BCR) also had a good earnings report in July. The medical-equipment company beat consensus by four cents per share. The shares pulled back earlier this month from a 52-week high but have shown some strength lately. I’m keeping a fairly tight Buy Below on Bard. CR Bard is a solid buy any time it’s below $115 per share. Don’t chase BCR. Wait for good stocks to come to you.

DirecTV ($DTV) has been in the news lately. It’s been reported that Google($GOOG) is talking to the NFL about buying the rights for the Sunday Ticket. Please, that’s longer than a long shot. Bear in mind that anything Google does will make news, so any news story about how they’ll hook up with pro football will get instant clicks. The truth is that the NFL is very happy with DTV. The Sunday Ticket deal is up next year, and of course the NFL will talk to other parties. There’s no reason to believe the NFL will start broadcasting over YouTube. I’m lowering my Buy Below on DirectTV to $64 per share.

FactSet Research Systems ($FDS) is another Buy List stock with an August quarter, so you can expect earnings in a few weeks. FDS is a great example of how our “set and forget” can beat hyperactive traders. The stock dropped 6.6% after the last earnings report, which merely met expectations. Fortunately, we held on as the stock made back everything it lost and rallied to a new 52-week high. FactSet sees the upcoming earnings report ranging between $1.18 and $1.21 per share. FDS is a buy up to $112 per share.

Fiserv’s ($FISV) been weak lately after a very good earnings report. Don’t worry about this one. Fiserv reiterated its full-year guidance of earnings ranging between $5.84 and $6.03 per share. FISV is a good buy up to $103 per share.

It’s hard for me to stop gushing about Ford ($F), so I’ll try to go easy this week. Although the stock popped up as high as $17.68 after the last earnings report, the shares have been pretty sluggish since. Ford even dropped below $15.80 per share but the sale didn’t last long. The stock gapped up 3% on Thursday to close at $16.50 per share. Ford is an excellent buy up to $17 per share.

Harris ($HRS) announced a dividend hike this week. The quarterly payout will rise from 37 cents to 42 cents per share. Going by Thursday’s close, that works out to a yield of just under 3%. Last month, Harris destroyed its earnings estimates. The stock remains a very good buy up to $62 per share.

It’s no secret that JPMorgan Chase ($JPM) has been our most frustrating stock this year. The company delivers on the earnings but continues to make terrible headlines for shareholders. The latest is that the government is pressing JPM for $6 billion to settle lawsuits over subprime mortgages. The stock is down 10% in the last four weeks. My patience is wearing thin. I’m lowering my Buy Below to $56 per share.

Medtronic ($MDT) has been a pleasant surprise this year. It’s our fifth-best-performing stock on the Buy List. I’ve always admired the stability of MDT’s business, so it’s good to see investors give them respect. The stock met earnings expectations a few days ago. They also reiterated full-year guidance of $3.80 to $3.85 per share. In June, MDT raised their dividend for the 36th year in a row. MDT remains a solid buy up to $57 per share.

As a rule of thumb, it’s probably not a good sign when your CEO’s announcement of his pending retirement causes your market value to rise by $24 billion. But that’s exactly what happened to Microsoft ($MSFT) after Steve Ballmer said he’s going to leave as CEO within the next year. By the way, Ballmer’s made a cool $1 billion on the announcement, as well. I’m expecting a dividend boost soon. MSFT is a buy up to $35 per share.

Moog ($MOG-A) reported a big earnings beat last month, plus strong guidance, but the stock has been weak lately, which may be due to the government sequester. For now, I’m keeping my Buy Below at $57, but Moog is an exceptionally good buy if you see it trading below $50 per share.

There’s not much new to say about Nicholas Financial ($NICK), which is how I like it. The earnings report was basically what I expected. I think we’ll see a dividend increase later this year. The shares have recently pushed back above $16.

Oracle ($ORCL) is another Buy List stock with an August quarter. The next earnings report should be out around September 20th. In my eyes, this is a make-or-break report. The last two reports have been duds, and so far, I’ve given Larry and his team the benefit of the doubt. Now I want to see solid results. In June, Oracle gave us quarterly guidance of 56 to 59 cents per share. Frankly, that’s not terribly impressive (ORCL made 53 cents a year ago). If Oracle has turned the corner, it’s a $40 stock. But that’s a big “if.” Oracle is a buy up to $35 per share.

Ross Stores ($ROST) reported excellent earnings news last week. I was pleased to see the shares gap higher on Friday to a new 52-week high. The stock also beat its old all-time high by four cents per share. ROST’s forecast for Q3 was a bit light, but I think they’re just being conservative. The strong consumer-confidence report this week bodes well for Ross. ROST remains a very good buy up to $70 per share.

Stryker ($SYK) missed earnings in July, and lowered its full-year earnings by a bit, but it wasn’t enough for me to be concerned. SYK sees full-year earnings coming in between $4.20 and $4.26 per share. The orthopedic powerhouse has given us big dividend increases the last few Decembers, and I think this one will be no exception. Stryker is a buy up to $71 per share.

Unlike JPM, Wells Fargo ($WFC) is our well-behaved bank. The earnings here continue to be very good. WFC got caught up in the selling that’s hit all the financials. No need to worry. This is one of the strongest financials around. Due to the pullback, I’m lowering WFC’s Buy Below to $45 per share. This is a very solid stock.

After an astounding run from May through July, WEX Inc. ($WEX) finally took a rest this month. For Q3, they see earnings between $1.16 and $1.23 per share. That’s up from $1.08 per share for last year’s Q3. For all of 2013, WEX sees earnings ranging between $4.27 and $4.37. I rate WEX a buy up to $93 per share.

That’s all for now. The stock market will be closed on Monday for Labor Day. After that, we get the important first-week economic reports. ISM is on Tuesday, the ADP jobs report on Thursday. Then the big official jobs report comes on Friday. The last four non-farm payroll reports have ranged between 160,000 and 200,000 new jobs. This will be the last jobs data before the Fed’s next meeting in mid-September. Be sure to keep checking the blog for daily updates. I hope everyone has a great three-day weekend. I’ll have more market analysis for you in the next issue of CWS Market Review!

– Eddy

Posted by Eddy Elfenbein on August 30th, 2013 at 7:04 am

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.