Investment Ideas: NPBC, CEDC, HF, COP
National Penn Bancshares, Inc. (NASDAQ:NPBC)
In defiance of the marketwide selling, and despite the terrible performance over the past twelve months, investors are flowing into National Penn Bancshares, Inc. (NASDAQ:NPBC). Perhaps these buyers are focused on - and rightfully so - the projected next twelve months.
National Penn Bancshares is expected to return to profitability again in 2010, earning $0.27 per share in the process. Moreover, investors are starting to realize the turnaround… and doing something about it. NPBC moved above its 200 day line recently, and has hit new multi-month highs on growing volume. There’s plenty more room to keep moving upward though.
Central European Distribution Corp. (NASDAQ:CEDC)
After four consecutive quarterly ‘beats’, coupled with the fact that Central European Distribution Corp. (NASDAQ:CEDC) sailed through the recession very few bumps or bruises [not including some accounting-only hits], one would think the stock is a no-brainer. But, the dip from the latter part of last year has set up anew buying opportunity - signaled by an accumulation alert. The fact that all of this happened after CEDC found support at the 200 day line is just a nice little kicker.
As for valuation, there are two you need to know…. the past-twelve month P/E of 18.9, and the forward-looking one of 13.2. The former is palatable, but the latter is a reason to buy…. and investors are. And remember, Central European Distribution has been topping estimates of late - he future P/E of 13.2 may still be too high.
HFF Inc. (NYSE:HF)
It may be a little pre-emptive, but with HFF Inc. (NYSE:HF) on the verge of completing the handle portion of a cup and handle pattern, the time to step in may be sooner than later. Why? Stocks tend to accelerate pretty quickly once the barrier’s been broken.
In this instance, the chart’s renewed strength is actually reflective of the impending financials. HFF Inc. had been taking losses, but managed to break-even last quarter. The company’s expected to earn $0.02 per share for Q4 of 2009, and a total of $0.24 per share in 2010. Though that still leaves the stock on the expensive side, the chart’s suggesting that the market doesn’t care.
As a mortgage play, HFF Inc. feels risk at this juncture. However, aside from the fact that it’s a contrarian idea, even a tepid improvement in real estate lending is an improvement.
The proverbial line in the sand is around $7.00.
ConocoPhillips (NYSE:COP)
Though in the red today, ConocoPhillips (NYSE:COP) is setting up - on a technical basis - as one of the highest-potential oil rebound plays among the major names in oil and gas market. With help from support at its 100 day moving average line, COP is knocking on the door of new multi-month highs. That ceiling as currently just a hair over $54; if ConocoPhillips can knock it out, there’s little resistance left until the $90 area.
Yes, it’s an oil play, which includes some risk. With a forecasted EPS of $6.29 for the coming year (which brings the ofrward0looking P/E to under 9.0), it’s a good risk. Oil prices and oil demand just have to hold steady, which hasn’t been a problem during the economic recovery process yet.
Market, SPDRs (SPY) Now Taking on Water
The S&P 500 SPDR ETF (NYSE:SPY), though not yet even close to falling out of its recent bullish trading range, may have just done something far more alarming. The support line that extends back to July (and arguably to March’s bottom) failed to act as a floor today. The ETF is under it for the first time since then.
S&P 500 SPDR (SPY)
On the nearby chart, the line in question is the thin black one - the steepest one. Today’s low of $112.98 for SPDR S&P 500 fund is under it, and now that the initial damage is done, it becomes easier for more of the same.
For the time being, the bullish range that SPY has found (framed in blue) is still in
tact, so there’s still a shot that it could halt a pullback before it developed any significant momentum. That line’s at $110.50 though… about $2.50 under the current price for the ETF. That difference could make for a decent put option trade.
Note that a ‘deep in the money’ option may not offer enough bang for the trading buck in this scenario.
Today’s Best
Incredibly enough, some stocks and industries are up today. Given the sheer resistance to a marketwide panic, the reason any stock or sector is up today is worth exploring. Note that both of today’s groups are also considered defensive in nature.
Best-performing industries, as monitored and grouped by Standard & Poor’s:
- Industry: Today’s % Change (% Chg 1 Mo.)
- Agricultural Prod: +1.52% (+0.0%)
- Oil, Refin & Mkt:g +1.15% (+11.0%)
Today’s Worst
It’s not hard to find a losing sector today - almost all of them stink. The worst of the worst, however, may be particularly problematic.
What’s interesting is how today’s biggest losers are some of the biggest winners over the last twelve months. Profit-taking? Probably, though if that’s the case, more profit-taking could be in store.
At any rate, these industries deserve some special attention based on their extreme weakness.
Worst-performing sectors in S&P 500 index:
- Industry: Today’s % Change (12 Mo. % Change)
- Gold Mining: -6.14% (+28.00%)
- Paper, Forest Prod: -3.85% (+147.00%)
- Printing, Specialty: -3.75% (+102.00%)
- Metals, Mining: -3.67% (+238.00%)
- Railroads: -3.43% (+57.00%)
- Iron & Steel: -3.39% (+48.00%)
- Gaming: -2.96% (+86.00%)
- Oil, Domestic Integ: -2.94% (+89.00%)
- Airlines: -2.80% (+31.00%)
- Retail, Specialty: -2.68% (+58.00%)
Tuesday’s Unusual Volume Activity
Rallying is one thing, but rallying on high volume is altogether different - and much more bullish. That’s what makes Humana Inc. (NYSE:HUM), American Medical Systems Holding Co. (Nasdaq:AMMD), IPC The Hospitalist Company, Inc. (Nasdaq:IPCM), Amedisys Inc. (Nasdaq:AMED), and Vivo Participacoes S.A. (NYSE:VIV) are Tuesday’s standouts…. big gains, on massive volume. The reason for the heavy accumulation should be explored.
Here are the details:
- Humana Inc.: Up 7.0% on a 298% increase in average trade.
- American Medical Systems Holding Co.: Higher by 4.3% on 175% more volume than normal.
- IPC The Hospitalist Company, Inc.: Gained 2.8% on a 134% increase in activity.
- Amedisys Inc.: Up 8.5% on a 126% volume bump.
- Vivo Participacoes S.A.: Higher by 2.5% on 115% more trading activity than usual.
Conversely, losers were few and far between on Tuesday, so to see a loser falling on heavy volume is particularly concerning. Not that it was the proverbial nail in the coffin for any of these names, but Fastenal Company (Nasdaq:FAST), Community Health Systems, Inc. (NYSE:CYH), Blackboard Inc. (Nasdaq:BBBB), Delphi Financial Group, Inc. (NYSE:DFG), and Baidu, Inc. (Nasdaq:BIDU) were the day’s high-volume losers.
Here are the vital stats.
- Fastenal Company: Lower by 2.3% on 259% more volume than normal.
- Community Health Systems, Inc.: Down 2.7% on 258% more activity than usual.
- Blackboard Inc.: Off by 3.7% on a 210% in average trading activity.
- Delphi Financial Group, Inc.: Fell 2.6% on a volume increase of 199%.
- Baidu, Inc.: Down 5.7% on 199% more trading activity than normal.
Tuesday’s Market Round-Up: All You Really Need to Know
Slow down a minute Endo Pharmaceuticals Holdings Inc (NASDAQ:ENDP) - there’s already a generic Lipoderm skin patch like the one you just submitted an NDA (new drug application for). At least that’s the story from Watson Laboratories Inc. (NYSE:WPI), which recently notified Endo Pharmaceuticals Holdings of the overlap.
Watson Laboratories Inc. invoked a ‘paragraph IV’ clause to let regulators – and Endo – know it has already filed for a copycat version of the same generic version of Endo’s post-shingles treatment. Though not necessarily a final decision, ENDP shares are down 3% on the news.
In Japan’s biggest non-financial firm bankruptcy ever, Japan Airlines Corp. will survive and keep flying thanks to a state-supported 600 billion yen credit line, 300 billion yen in cash, and a forgiven 730 billion yen worth of debt. Shareholders, bond owners, and the upper management team are just out of luck, and/or out of a job.
It’s the fourth time in ten years that Japan Airlines Corp. ahs been bailed out by its government.
McDonald’s Corp (NYSE:MCD) is up 1.5% today thanks to a Credit Suisse upgrade for the fast-food chain. The research firm cited the company’s international business should deliver significant earnings estimate increases.
McDonald’s ability to prosper in a tepid economic environment was also mentioned as a key reason for the optimistic outlook.
Monsanto says DuPont can’t market corn or soybean seed by touting both a ‘Roundup Ready’ genetic trait as well as an ‘Optimum GAT’ trait. The Roundup Ready trait (a Monsanto invention) is said to actually mask problem with the GAT genetic trait (which just so happens to be a DuPOnt invention). At least that’s the rationale from Monsanto Co. (NYSE:MON), which just claimed victory in a recent court case.
Despite that ruling, DuPont (NYSE:DD) is pressing on with its countersuit against Monsanto, citing Monsanto’s unwillingness to supply the Roundup Ready gene, which comes off its patent in 2014. DuPont says that action is a deliberate maneuver to limit competition within the seed marketplace.
The two cases are now clearly not one and the same, though they were running in parallel. The Monsanto victory in one argument only resolves half the issue, and effectively solves none of the overarching issue. There is no specific timeframe for DuPont’s next legal process steps.
Despite falling short of Wall Street’s estimates, TD Ameritrade Holding Corp’s (NASDAQ:AMTD) shares are up 4.3%. The second-biggest discount broker saw earnings decline by 26%, on a 2.3% increase in revenue. Representatives of TD Ameritrade Holding Corp. said trading activity ground to a halt in November and December, though has resumed to normal levels so far this year.
Navistar International Corp’s (NYSE:NAV) may not have a great 2010, according to its recent self-outlook. The stock rebounded somewhat after tumbling 10% on the unwelcome news of an EPS between $1.75 and $2.25 this year. But, NAV is still in the red by 3.5%.
Those numbers are well shy of the $3.49 that analysts expected from Navistar International Corp. this year. The company does see an end to its three-year sales decline in 2010, though a slow recovery or recession could pose a risk of a fourth straight annual sales decline for the truck manufacturer.
Humana Inc. (NYSE.HUM), Coventry Health Care (NYSE:CVH), Aetna (NYSE:AET), and a whole slew of other health care plan providers and HMOs are up today on hopes - perhaps assumptions - that Massachusetts will seat a Republican senator rather than a Democratic one in the special election underway to replace the late Edward Kennedy. By subtracting one Democratic senator, the GOP will have at least a shot at preventing the required majority President Obama needs to present pass the current version of his healthcare reform bill.
While on the surface, taking healthcare out of the government’s hands and leaving it managed by the likes of Humana Inc., Coventry Health Care, and Aetna seems like a reason to own these names, that’s not necessarily the case in this scenario. Even a Republican victory won’t inherently prevent the bill form coming to the floor for a vote, and even if the bill is defeated, that doesn’t mean these stocks are ownership-worthy.
Nevertheless, sentiment and speculation are ruling the day, and that may put enough gas in the tank to fuel a nice rally from this group…. particularly if Republican Scott Brown is elected.
The Pros Picks, and Why: T, IBM, KFT, HPQ, MSFT
He gets zero points for creativity, but a few points for being bold enough to be boring. Tom Forester - portfolio manager of the Forester Value Fund has recommended Microsoft Inc. (NASDAQ: MSFT) and Hewlett-Packard Company (NYSE: HPQ) as his top tech picks right now…. a sector he’s keen on as a way of avoiding the looming problems that could be stirred up again by the lingering real estate crisis, which would infect banking.
He mentioned Microsoft was trading below the market’s average price multiple, and that Hewlett-Packard is prices at about 12 times its earnings.
Capital Advisors’ Keith Goddard is naming names. In a recent CNBC interview, he recommended AT&T, IBM, and Kraft Foods for anyone seeking safety and dividends for the next three to five years.
The current dividend yields of each stock are:
Goddard expects each company to raise dividends over this same time frame.
Volume Alerts: Today’s Heaviest Selling
They may or may not be Wall Street’s biggest gainers today (they are, in some cases), but a handful of stocks are being bought up on massive volume increases. It’s a potential sign of a breakout, and/or institutional buying. Those stocks are:
- Baidu, Inc. (Nasdaq: BIDU)
- Taleo Corporation (Nasdaq: TLEO)
- Catalyst Health Solutions, Inc (Nasdaq: CHSI)
- Schweitzer-Mauduit International Inc. (NYSE: SWM)
- Newfield Exploration Co. (NYSE: NFX)
Schweitzer-Mauduit International Inc. Is up 3.0% on a 100% increase in its average volume. Newfield Exploration Co. has gained 5.2% on volume that’s 83% stronger than the norm. Baidu, Inc. is rallying 5.6% on a 283% increase in normal trading activity. Taleo Corporation is up 5.7% on a 155% volume surge. Catalyst Health Solutions, Inc is gaining 3.2% thanks to a 134% pop on normal trading volume.
Trade-Worthy: AnnTaylor Stores Corp. (NYSE: ANN)
About the only thing AnnTaylor Stores Corp. (NYSE: ANN) shares have going for them at this point is how anybody who’s thinking about shorting the stock, or buying put options on it, has a good chance at making some money.
Between the Motley Fool pointing out how unpopular ANN is on their CAPS site, the downgrade from Jeffries & Co., and the likely loss on weaker sales in Q4, it’s no wonder the stock is struggling.
The technical nail in the coffin for AnnTaylor Stores Corp. could be a move under $12.60 or so, where ANN found support in November. That support is being tested again right now. If it fails this time, then poof!
Swine Flu Finally Bears Fruit for Pharma
Remember April’s global outbreak of swine flu? A few promising pharmaceutical stocks went ballistic…. even before their companies actually developed a vaccine. Ironically, though a few of these companies are selling vaccines, the H1N1 hysteria is so dated that investors have lost interest. Too bad too… the payoff is just now materializing.
First, But Not Biggest: AstraZeneca PLC (AZN) technically won the H1N1 vaccine race, getting an approved swine flu treatment out early enough to see it drive a bit of revenue during the company’s third quarter. Their version – the FluMist nasal spray – took less time to develop as it was built around a live (weakened) virus rather than using a CDC-supplied dead virus.
So AZN is the stock to own then? Not so fast. Total FluMist sales in the fourth quarter should fall in somewhere around $500 million. That’s not much compared to the $32 billion in sales the company raked in last year…. only about a 6% annual revenue boost at current sell-through rates.
Most, But Not Best: GlaxoSmithKline (GSK), while not first, may be seeing the biggest fiscal impact from its swine flu treatment. Sales of the company’s broad-use Relenza vaccine were already strong, but the introduction of a true H1N1 treatment is expected to boost fourth quarter’s sales by $1.64 billion. That’s about 5% of the companies’ total revenue last year. Assuming the number can be repeated in future quarters, swine flu treatment sales could boost the company’s total revenue by 20% as long as the current demand persists.
GlaxoSmithKline’s massive production capability poises it as the company that could sell the most H1N1 treatment when it’s all said and done, even though it wasn’t the first, and even though the vaccine isn’t significantly better than the others.
The Best of the Rest: Investors should also keep tabs on Novartis AG (NVS), Sanofi-Aventis SA (SNY), and Baxter International (BAX). Each has their own revenue-bearing versions of a swine flu treatment that wasn’t launched until the present quarter.
The benefit to each company varies, as it did between Glaxo and AstraZeneca. Given that the combined production capacity of all the pharmaceutical companies may not catch up with demand until late 2010 though, the next several quarters could be solid for all of them…. GlaxoSmithKline in particular.
Perspective: At last look, the United States had possession of 73 million doses of the 250 million it had initially ordered; the shortfall is proportionally about the same across the globe. At roughly $20 per dose with so many more to make, H1N1 is going to bear some nice fruit for a while.
(Originally written for Kapitall.com)
Weekly Market Outlook – December 19th, 2009
Despite Friday’s late gains, it still wasn’t enough to push expiration week back into the black for the market. The S&P 500 closed 4.0 points lower (-0.36%) than the prior Friday’s close. It was the fifth straight week of the bull/bear stalemate, and as we’ve mentioned before, the longer the bulls don’t make progress, the greater the pullback risk becomes.
Needless to day, none of the indices hurdled their key ceilings last week. We standing pat on the stance that stocks will need to go significantly lower again before going higher. More details are below.
On the economic front we were handed a mixed bag, but mostly bullish underpinnings.
Producer prices as well as consumer prices were rose by a little more than expected. Though the media tends to balk at slightly higher inflation, history has shown that moderated inflation such as that is actually coincidental with economic growth. Capacity utilization, productivity, building permits, and housing starts were all also positive in addition to being better than expected.
On the downside, new and repeat unemployment claims were not only both higher than last month, but both were higher than expected. Worse, the figure doesn’t include former employees who’ve seen their unemployment benefits fully expire.
Take a look at the economic calendar, then keep reading for the detailed chart reviews.
Economic Calendar
S&P 500
We’ve switched to a weekly chart of the S&P 500, as it really serves up some perspective about how the rally since March has slowed to a halt over the last five weeks. The support and resistance arcs are still in play; the SPX just can’t get over the upper edge of that range. In fact, the index has been stalled for such a long time, horizontal resistance (the old school style) has materialized around 1115.
While we hate to sound like a broken record, until that level is breached, going long on the markets not a viable trade. Factor in the bearish MACD crossunder on the weekly chart - the first in ten months – and it’s even more difficult to get or stay bullish.
As before, we anticipate a move back to the arc’s support line at 1040…which is holding steady.
S&P 500 - Weekly
As for the other two indices, there’s not much to add that we can’t glean from the S&P 500’s chart. So, we’ll not waste words or time. Just know that the NASDAQ managed to gain 18.67 points last week (+0.85%) thanks to strong tech gains on Friday, while the Dow Jones Industrial Average lost 1.3% to end the week at 10,328.89.
There is, however, a chart very much worth exploring…. the U.S. Dollar Index.
U.S. Dollar Index.
With the U.S. Dollar staging a huge and surprising rally over the last two weeks, a lot of investors are calling for demise. The assumption is that the same conditions that drove it onto the ground throughout the year are still intact. Therefore, it has to move lower again.
The premise is right, but the assumption is wrong. The economy may well be in shambles, but relative to other economies, the U.S. currency risk is still less than the rest of the worlds’. Traders never quite grasped that, assuming what was seen in America was the only relevant influence. And, it would also be tough to deny that a little ‘gloom and doom’ preaching was taken a little too far.
Said another way, the monster pullback of the dollar between March and now had little to nothing to do with fundamentals, and everything to do with overzealous speculation.
For that reason, we would strongly urge traders (and even investors, since this could lead to a long-term trend) to not shrug off signs simply because they indicate something that’s hard to believe. Charts don’t lie. Charts are what they are. The dollar’s going higher for a reason. It may not be a good reason, but it’s no worse or no better than the reason the dollar got shellacked for the better part of 2009.
Of course, Murphy’s law now dictates that the sawbuck will head south again now that we’ve said there’s a new trend in place. That’s not our point though. We’re just saying don’t try and dismiss a chart’s clue that would be interpreted in a different way were it any other trading instrument. Don’t forget, the dollar’s bears were betting against it after the August 2008 pop as well, and it continued to rally 17%.
U.S. Dollar Index
Investing in Coal Requires Paying Attention to Details
It wasn’t that long ago that tapping into the red hot uptrend of coal stocks simply meant buying some of the Market Vectors Coal ETF (KOL) and being done with it. After a politically-charged economic recovery though – paired with a renewed (even if spotty) social interest in the environment – coal investors are being forced to pick and choose their targets. Why? Because not all coal stocks are the same.
The good news it, spotting coal’s hot spots and cold spots isn’t a shell game. Better still, it’s not as if there’s a lack of transparency in terms of what’s hot or not in the world of coal.
What’s Hot
Coal Usage in India and China: Stimulus supported growth is actually working on several international fronts, causing China and India to become major importers of thermal coal… needed by now-busier steel mills in those locales.
Who does this help? Companies like Walter Energy (WLT) and Peabody Energy (BTU), both of which enjoy strong market share within the Chinese market. Peabody is something of a double-barreled competitor, with Australian as well as U.S. operations. Australia meets about 2/3 of China’s coal needs; Peabody may need to double its Australian output based on current growth rates.
Metallurgical coal: Coal demand isn’t sky-rocketing for all coal equally. Metallurgical coal needed by smelts and factories – sometimes called coking coal – is where the demand is really growing. That’s marginally true for the U.S., but very true for Asian factories.
Who does this help? Companies like Rio Tinto (RTP) and BHP Billiton (BHP), two of the coking market’s dominant players.
What’s Cold
U.S. Electricity-Generating Coal: The recession crimped usage of coal for industrial purposes at the same time coal stockpiles surged to multi-year excess; coal production in the United States is running about 10% on a year-over-year basis, while inventories are about 20% higher than last year’s already–high levels. In other words, demand for coal in the United States isn’t apt to improve significantly anytime soon.
Who does it hurt? Coal companies like Arch Coal (ACI) and Alpha Natural Resources (ANR), which rely heavily on U.S. demand.
Thermal coal: Though the use of coking coal is up, the need for thermal coal – coal used to fire electric power plants – isn’t recovering nearly as well… particularly in the United States. Demand is still ramping up in China though.
Who does it hurt? Again, Arch Coal (ACI) relies a little too much on sales of thermal coal for investors’ comfort.
Yes, there are exceptions and plenty of overlap when it comes to companies affected by these trends. Now that the trends are identified though, identifying the better investments isn’t too big of a task.
(Originally written for Kapitall.com)
