What the Market Wants: Congress Fails to Act Reponsibly
The Senate has rejected the House bill, and the government will shut down at midnight if the House doesn’t submit a “clean” bill with ObamaCare issues removed. The current thinking is that is unlikely. What is more likely is a day or week extension to allow time for more negotiating (as if any has really taken place). How will the market react? Historically, it has always been down on the news with a fairly rapid recovery. Last week, all style/caps were down for the first time in September, except Small-cap Growth. So, one idea is to buy attractively priced small cap growth stock(s).
The broad market was down nearly a full percent last week. Today, everything was down about 0.5% in a muted response to the indecision, as not many investors really expected a resolution. All sectors were down without exception. The Russell 2000 was actually up 0.03% (iShares). So, small caps win again.
New problems in Italy also contributed to today’s malaise. We doubt that will get better soon. The only economic data today was a positive blip up for the Chicago PMI, but it likely had very little influence on trading. No striking economic indicators this week (see chart below), although Friday’s monthly employment report will be closely watched.
Caution is once again the word as Congress will decide just how much they want to hurt us before reaching some type of solution of short duration, later in the week or perhaps even next week. This has not happened since Clinton times, but the market to date has not suffered any long term negative from Congressional ineptitude.
3 Stock Ideas for this Market
I selected the following stocks from a custom GARP search looking for recent upward analyst revisions in MyStockFinder and only small or mid cap stocks (*all data below from Yahoo! Finance):
HCI Group Inc. (HCI) –Financials
- Trading for 8.77x current earnings and 9.56x forward earnings estimates
- 2.2% forward dividend yield
- Analyst revised EPS estimates up in last 7 days
- 148% projected EPS growth for current quarter, 62% 2013
The Hanover Insurance Group Inc. (THG)—Financials
- Trading 23x current earnings and 12 forward earnings estimates
- 2.4% forward dividend yield
- Analysts revised EPS estimates up in last 7 days
- 11% projected EPS growth for the current quarter, 162% next quarter, 142% over the next 5 years
Lithia Motors Inc. (LAD)—Cyclical Consumer
- Trading for 20x current earnings, and 16X forward earnings
- Analysts revised EPS estimates up in last 7 days
- 22% projected EPS growth for the current quarter, 21% next quarter, 25% over the next 5 years