The market enthusiasm generated by the positive employment report on Friday carried over to yesterday. The rally in Technology stocks continued from last week, but Financials did even better. With the Nikkei and FTSE both closed, the off-shore action ended slightly more positive than negative. We had no domestic reports yesterday in what will be a quiet week of economic news with only Thursday’s Initial Jobless Claims and Wholesale Inventories Reports, following today’s Consumer Credit report.
Last week’s generally positive news should carry into this week, barring any major shake-ups from global hot spots. Positive Personal Spending and robust increases in Case-Schiller HPI and Consumer Confidence paved the way for the strong employment reports last week. Only Chicago PMI, Personal Income, and Construction Spending kept last week from a break-out rally. But one can’t complain about the 2% rise in the S&P 500, which reached new all-time highs yesterday along with a 3% gain in the NASDAQ, as techs carried the week.
In addition to Financial and Technology stocks, Energy did well yesterday as oil and gas bounced to positive closes after weak openings. So, without a negative surprise, it is likely that equities will continue to rise as funds flow from the dangerously risky bond market (note Buffet’s comments yesterday on bond risk). Our study of valuations continues, but it appears that while clearly above average, valuations are well off former highs. Hopefully, we will have more specifics on valuation by next week.
What do the equity markets favor? Well, last week all style/caps did well, but the best was Large-cap Growth, up 2.5%, and the worst was Large-cap Value, up 1.4%. In general, growth fared a bit better than other styles, except for small-caps. With Utilities and Heathcare bringing up the bottom of the sector performances, it’s clearly been a risk-on market, particularly in the Technology and Financial sectors.
4 Stock Ideas for this Market
I select the following stocks with GARP in mind:
AGCO Corporation (AGCO) – Industrials
- Trading for 10.32x current earnings and 9.25x forward
- Recent upward analyst revisions to EPS estimates
- Projected EPS growth: -13% current quarter, 25% next quarter
– Consumer Cyclical Goods
- Trading for 14.2x current earnings and 10.4x forward earnings
- Projected EPS growth: 23.3% current quarter, 16.4% next quarter
Technology
- Trading for 6.6x current and 6.7x forward earnings
- Upward analyst revisions to EPS estimates in the last 7 days for coming quarters and year
- Positive technical trend
- Strong Q1 earnings report with positive forward guidance
—Energy
- Trading for 15.4x current earnings and 8x forward earnings
- Projected EPS growth: 152% current quarter, 80% next quarter, 108% 2013