What the Market Wants: More Earnings Like DISH, HUM & HIG
More Earnings Like DISH, HUM & HIG
by David Brown, Chief Market Strategist, Sabrient Systems
The market started out strong today, encouraged perhaps by the news about Osama Bin Laden, although the consensus seems to be that his death will have little or no effect on the economy. In fact, the market started selling off mid-morning and ended the day down. Nasdaq reached a 10-year high of 2,887 today before joining the sell-off and ending the day at 2,864.
The Energy Sector appeared to lead the market down, in response to the report on construction spending, which was up for the month but also recorded the lowest reading since 2000. Chesapeake Energy (CHK) was one of the sector's casualties, losing $-0.32 a share, and down -3.5% in after- hours trading after losing almost 1% during the day. Another was Loews Corporation (L), whose earnings were down -9%.
There were, however, a number of strong first quarter earnings reports, along with positive guidance. Dish Network Corporation (DISH) beat estimates by +$0.54 and was up +18% for the day; Humana's (HUM) +22% increase in earnings handily beat estimates, and the company also raised its 2011 guidance; Automatic Data Processing (ADP) was in line with estimates and offered a positive outlook; and Hartford Financial (HIG) earned $1.16 for Q1, beating estimates by +$0.21 and gaining +2% in after-hours trading.
The VIX, the "fear index," was up sharply, +8%. This could be due to fears of retaliation from the death of Bin Laden, but the reading of 15 for the VIX is still quite low.
Last week was a different story.
In a week of strong earnings reports and generally positive economic news, the market reached new 3-1/2 year highs. Durable goods, new home sales, and construction spending were the best evidence of the continuing economic recovery, while personal income, Michigan sentiment, and ISM manufacturing index were all a tad better than expected.
On the negative side, GDP grew +1.8% for the 1st quarter, down from the +3.1% of Q4 and slightly worse than the expected +2%. Initial jobless claims were the biggest party-pooper, jumping to 429K from the previous week's 404K and surpassing the consensus number of 390K.
Market stats. All cap/styles gained last week, with less than 1% difference between the best performer (Small-cap Value, +2.38%) and worst performer (Mid-cap Growth, +1.46%). Sector performance was topsy-turvy, if you compare it to the projections of our forward-looking SectorCast. The sector projected to be #1 -- Basic Industries -- was actually #10 last week, and Transportation, projected to come in dead last, was the best performer of the week.
Frankly, I can't figure it out, except to postulate that maybe the Transportation Sector was fueled by the momentum of lower oil prices the week before.
This week's SectorCast looks very much like last week’s -- Basic Industries on top; Transportation and Consumer Services at the bottom. We'll just have to wait and see how it plays out.
4 Stock Ideas for This Market
This week, I started with the Undervalued Large-Cap Growth preset search in MyStockFinder (http://MyStockFinder.com). I then included Mid Caps and slightly up-weighted Technicals. Here are four stock ideas from the top-ranked sectors:
Westlake Chemical (WLK) – Basic Industries
Cash America International (CSH) – Finance
Impax Laboratories (IPXL) – Healthcare
Northrop Grumman (NOC) – Capital Goods
Until next week,
David Brown
Chief Market Strategist
Sabrient Systems, LLC
Leaders in Investment Research
http://www.sabrient.com
and http://Twitter.com/ScottMartindale
Full disclosure: The author does not personally hold any of the stocks mentioned in this week’s “Stock Ideas.”
Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account their personal financial circumstances in acting on any rankings or stock selections provided by Sabrient. Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.