What the Market Wants: The Market Wants Clarity Now!
From the Fed, from Congress and President, and from Europe for starters. Chairman Bernanke may give us the former as he testifies on Tuesday and Wednesday this week. Congress must act by Friday over the sequestration issues. And Italy could’ve helped a bit today if its election resulted in a more stable government, although that does appear to be happening. But clearly, Friday’s Congressional decision on the sequestration issue is the key development of the week.
The week is full of economic announcements including the important Consumer Confidence on Tuesday and Durable Goods on Wednesday. GDP’s second reading for Q4 will be closely watched on Thursday, along with Initial Jobless Claims and the Chicago PMI. Friday brings us the sequestration deadline plus Personal Income, the final Michigan Consumer Sentiment reading of February, and Consumer Spending.
Obviously, it is a week for caution. It will most likely be a flight-to-safety week with Consumer Non-Cyclicals, Utilities and Health Care. This week’s March 4th edition of Time magazine includes an in-depth scathing overview of the our healthcare sector entitled ”Why Medical Bills Are Killing US,” written by Steven Brill. Read it. It’s very frightening, and it will make you very angry, although it is more about non-profits than the publicly held portion of the healthcare industry (although might apply to both).
Confused? Join the crowd. We have several undervalued stocks listed below for your consideration, but I would strongly urge you to consider hedging with VIX derivatives which, while slightly off lows, are far from 2012 highs. The VIX was up 34% today and the VXX was up 15.3%. If Italy is in gridlock, I would enter a hedge position as the market opens. If Italy is carried by Bersani’s party rather Berlusconi, you might wait until we get a feel for Bernanke’s comment. But if Berlusconi wins all or it is deadlocked, I would hedge at the open.
4 Stock Ideas for this Market
This week I used the GARP (Growth at a Reasonable Price) preset search in MyStockFinder, filtering only for large cap stocks, which our market stats indicate should be more stable in periods of market volatility.
DAL (Delta Air Lines Inc.) Industrials.
- Trading for under 12x current earnings and 4.75x forward earnings
- 2013 projected EPS growth of 38.3%; 340% current quarter; 36.2% next quarter
- Long-term projected EPS growth of 26%
AAPL (Apple Inc.) Technology
- Trading at 10x current earnings and 8.8x forward earnings
- 20% long-term projected growth rate
- Apple is significantly discounted after its selloff. With more growth on tap in markets that haven’t been entered, like China, we expected Apple’s stock price to recover.
ABBV (AbbVie Inc.) Healthcare
- Recently spun-off from Abbot Labs to focus on advanced biotech research and new pipeline products
- Declared 4.20% yearly dividend yield
- Positive 2013 guidance mainly from its arthritis treatment, Humira, one world’s best-selling medicines.
TSN (Tyson Foods Inc.): Consumer Non Cyclical
- Trading for 14.4x current earnings and under 10x forward earnings
- 9.9% 2013 projected EPS growth; 6.8% current quarter; 8% next quarter
- Long-term EPS growth rate 8.5%