Earnings Warning

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Yesterday’s huge move took the S&P 500 above 1,105 to close right at 1,115. TradeMaster Daily Stock Alerts’ Jason Cimpl told his readers he’s bullish going into next week. And yesterday’s close at 1,115 will keep him from selling his latest round of upside trades.

That’s good news for TradeMaster readers, because one stock they bought on Friday made a 50% move in just two days. Jason’s bullish stance suggests there are more gains ahead for this little beauty.

Jason is looking for a move above the next resistance of 1,120 sometime in the next few days.

We’ve discussed earnings warnings over the last few days. As you know, I believe the potential for companies to start lowering their earnings forecasts is weighing on the stock market.

Well, this morning, FedEx (NYSE:FDX) reported solid earnings for its last quarter. But the company also said full year earnings would be in the $4.40 to $5 a share range. Analysts had expected earnings of $5.05 a share for the year.

Sure sounds like an earnings warning. Except that this is the first time FedEx has offered full year guidance since before the recession. And the company also indicated that the lower-than-expected guidance is a result of higher costs, rather than lower revenues.

So, it’s not a disaster.

FedEx, and shipping companies in general, are important gauges of global economic growth. Higher levels of business activity result directly in higher volumes of packages shipped. The fact that FedEx is forecasting solid revenues is a good sign for global economic growth.

And the fact that FedEx is even offering full year guidance is a good sign that the economy has stabilized enough to give the company confidence in its forecasts.

Cell-phone maker Nokia (NYSE:NOK) also warned, but that’s hardly significant. Apple (Nasdaq:AAPL) and Research in Motion (Nasdaq:RIMM) have relegated the one-time market leader in phones to second-tier player status.

Nokia’s warning may actually be good news. Apple is up on the news, which supports the Nasdaq. And we can assume that demand for high-priced smart phones remains strong.

Oil prices have been very strong, at $76 a barrel with ease yesterday. I expect to see $80 sometime soon. I hope Daily Profit readers adopted my energy policy (buy oil stocks now).

It’s also time to be bullish on solar stocks. The sector has been knocked down by reports what governments are going to reduce subsidies for solar instillations because of debt issues.

But valuations are extremely low for the sector. My two favorites are Trina Solar (NYSE:TSL) and Canadian Solar (Nasdaq:CSIQ).

Canadian Solar is an interesting case. The stock was crushed when the company announced earnings would be delayed due to an SEC investigation into revenue recognition. It looks as though past earnings may be re-stated. But going forward, the company should be fine once the investigation ends. In fact, I think stock could move 30%-40% once the investigation clouds clear.

Reader mail time!

Shaun B. writes

Ian, I am on of your SmallCapInvestor Pro advisory subscribers from England and greatly enjoy your commentary as well as your worldwide coverage, I have a couple of quick questions on etfs that I'm wondering if you could answer for me. I am curious after your comments about the oil etf XOP what is your take on other oil ETF's as generally they seem to me to give poor returns even when the sector is booming? Also on this note given your bullish comments on natural gas what are your thoughts on the natural gas ETF?

First of all: DO NOT BUY THE UNITED STATES NATURAL GAS FUN (NYSE:UNG) FOR ANYTHING EXCEPT A SHORT-TERM TRADE! This ETF has serious design flaws and will only lose money over time. The problem is the fund buys forward month natural gas futures and then sells them as they approach expiration. So they are consistently paying more for the asset than they can sell it for.

Now, ETFs in general have lower betas than individual stocks. And they are supposed to. Because ETFs give you broad sector exposure, they limit your risk to stock specific problems. So you give up some upside for stability.

I don’t have a problem with investing in ETFs. Just understand that ETFs won’t move as much as individual stocks. And that goes for both upside moves and downside moves.

In a few weeks I’ll be releasing a new ETF investment research report as part of my Global Commodity Investing service. ETFs are a great way to play commodities and commodity-related investments. Keep an eye for updates as we get closer to the release date.

George L. asks:

Ian--I see your evaluation of Oil & Gas Exploration and Production ETF (XOP) below. My question is do you think there is any reason for similar optimism for PXJ, another EFT is the Oil Exploration area? The stock price over the last two years has never been close to the original purchase price my broker paid. What is your advice on this stock? Am enjoying your newsletters. Thanks.

The PXJ is the PowerShares Dynamic Oil & Gas Services ETF. As the name implies, this ETF hold oil services stocks like Baker-Hughes (NYSE:BHI) and Halliburton (NYSE:HAL). It is not a pure play on oil prices.

Due to lower demand for oil, oil companies have trimmed back their spending. That directly affects oil services stocks and the PXJ. Not only that, but this ETF holds offshore services companies like Transocean (NYSE:RIG). Transocean stock has been cut in half since its Deepwater Horizon rig blew up and sank in the Gulf of Mexico.

I would think that next two years should be better than the last two years for PXJ.

Sidney Y. wants to know about REITs:

Hey Ian,

My REITs have continued to advance nicely. I bought MFA in the mid $6s, received a 13% (APY) dividend and it's mid $7s now. Also, I bought ANH right after the dividend in the low $6s and it's @ $7 with a dividend of 16% next month.

I'm looking @ ANGC with a 20% dividend in 2 weeks. What do you think about REITs?

Thanks for all your hard work.

Hi Sid, thanks for writing. Always good to hear from you. I’m sure you know I’ve recommended Maguire Properties (NYSE:MPG) a couple times in Daily Profit and readers have made some good money.

It’s not a popular position, but I like commercial real estate and REITs. After some of the banks, like Citigroup (NYSE:CITI) and Bank of America (NYSE:BAC), commercial real estate and REITs are the last of the bombed out sectors from the financial crisis of 2009.

There’s risk with these stocks, that’s for sure. But there’s also the potential for some big moves higher. Also, I wouldn’t buy these stocks for the dividends. If they keep paying, great, but don’t depend on the dividend.

Thanks for all your comments and keep ‘em coming to dailyprofit@wyattresearch.com