Tag - Sandp 500

The stock market rally that started on February 5^th, 2010 appears to be absolutely unstoppable. Bullet-proof. However you want to say it, there seems to be very little downside to stock prices, even after a strong rally.   

Now, we are not surprised. I’ve been relentlessly bullish here in Daily Profit. Sure, I may point out some discrepancies once in a while, maybe even shoot a few holes in the financial media’s neat and tidy explanations, but I’ve had us focused on upside targets for a year now, and there’s one main reason: earnings.   

This time last year, it was brutally obvious that analysts were seriously underestimating the earnings potential for bank stocks, even after the government changed the accounting rules to encourage profitability.   

And in subsequent months, analysts continued to lowball earnings estimates. Companies kept beating them, and the market kept rallying.     

How did we know estimates were too low? Well, partly because stocks kept rallying. It was one if the worst-kept secrets in history.

Of course, common sense tells us that, eventually, analysts will get estimates right, or <gasp> overshoot. How will we know when that time is at hand? Ironically enough, hiring will need to pick up.  

Corporate expenses were trimmed to the bone during the financial crisis and recession. And since payroll additions have only recently started to be noticeable, that means corporations haven’t noticeably adjusted their cost structure for the single biggest expense they face – workers.   

So until we see some true, meaningful gains in employment, stocks will move higher.   

Or, the Fed could start raising interest rates. That would sure give us some quick downside for stock prices.   

But getting back to earnings, Barron’s ran an interesting earnings table this weekend showing earnings growth by sector, based on analyst estimates. 

Three sectors are expected to show triple-digit earnings growth in the 1^st Quarter. Those sectors are Consumer Discretionary (115%), Financials (194%) and Basic Materials (179%).   

Now, we must remember that the 1^st Quarter last year was absolutely dismal. Poor earnings helped drive the S&P 500 to 20 year lows. Last year at this time the S&P 500 was trading with a P/E of 32, and it was below 850.   

Today, it has a P/E of 23, but the forward P/E based on estimates is a reasonable 15. 

Things get interesting if analysts have once again lowballed 1^st Quarter earnings. And judging by the stock market action, investors seem to believe another quarter of beaten expectations is in the works.   

The minutes from the last FOMC meeting were released yesterday. Aside from re-committing to low rates for an extended period of time, there wasn’t much worthy of comment, so I’m just going to re-print the headline from Bloomberg: “Fed Officials Saw Recovery Curbed by Unemployment”.   

You don’t say, Ben.   

I started following the commercial real estate sector last September when I noticed breakout moves from Maguire Properties (NYSE:MPG) and a few others.  

Daily Profit readers have had a couple opportunities to make nice gains from Maguire. In fact, it looks like it has started another move yesterday when the former CEO and founder offered to buy a few buildings from Maguire.   

Maguire’s not the only one running. And April 16 may mark a launching point for commercial real estate stocks.   

That’s the day shopping mall REIT General Growth Properties (NYSE:GGP) is expected to present its plan to exit bankruptcy as a stand alone company, thereby rebuffing the buyout offer from rival Simon Property Group (NYSE:SGP).   

Now, many people think Simon will make a better offer between now and the 16^th. And if so, we may see a bidding war for a bankrupt REIT break out. On one side will be Simon, and on the other will be a group of hedge funds that has backing from the Chinese Investment Corp (CIC).   

The presence of the CIC is significant for a few reasons, but none are as important for our purposes than the fact that it has $300 billion to invest and it’s looking at U.S. commercial real estate. That much investment capital could certainly re-price a lot of impaired assets.   

To learn more about the CIC’s involvement in commercial real estate, click HERE. 

It’s hard to believe that just a year ago, the Dow Industrials were trading around 6,500. It’s easy to look back and see this as an obvious buying opportunity, but it sure didn’t feel that way at the time.   

Of course, I was recommending stocks in SmallCapInvestor PRO, because valuations were incredibly low. But I was mitigating the risk by taking profits quickly.   

For instance, we took profits on SXC Health Solutions (Nasdaq:SXCI) in April with a 19% gain. That stock has gone on to post some fantastic gains. Conversely, we made a quick 33% on Arena Pharmaceuticals (Nasdaq:ARNA) between March 3 and March 11, 2009. That stock is now much lower than our exit price.   

In light of the anniversary of the market lows, the AP ran a great article over the weekend that included a bunch of interesting stock market stats. I’d like to share a few:  

• $5.6 trillion: Total gains in the stock market since March 9, as measured by the Dow Jones U.S. Total Stock Market Index, which tracks nearly all U.S.-based companies.  $
• 5.6 trillion: The amount that stocks are still down from October 2007, when the Dow peaked at 14,164. 83 percent: Amount the technology-dominated Nasdaq composite index is up since March 9. 
• $386 billion: Net cash flow for bond mutual funds $918: The price of an ounce of gold a year ago.
• $1,135.20: The price of an ounce of gold on Friday.
• 726,000: Jobs lost in February last year. 36,000: Jobs lost in February of this year.  
• $202.1 billion: Losses of the companies in the S&P 500 index in the final three months of 2008, a record.
• $132.7 billion: Estimated earnings of the companies in the S&P 500 index in the final three months of 2009.
• 25.3: Consumer confidence a year ago — a record low.
• 46: Consumer confidence today.
• 90: Consumer confidence number that economists believe signifies a healthy economy.

There are a few numbers that really stand out here. First and foremost is the negative $1.5 billion stock mutual fund flow and the positive $386 billion bond fund flow. This is perhaps the most telling stat of them all.   Individual investors have not embraced the stock market rally, despite the $5.6 trillion gain in market capitalization for stocks. And the potential for another $5.6 trillion in market cap gains for stocks is a potential missed opportunity.

Corporate earnings have improved dramatically, and we are nearing the end of another very good earnings season. The current trailing 12-month P/E for the S&P 500 is 21, according to the Wall Street Journal. But the forward number is 14.5, which is reasonable. And if earnings continue to beat expectations, this number is actually low.  

Judging from the consumer confidence number, Americans are not sold on the economic recovery. I don’t think it’s a leap to assume that this is because unemployment remains uncomfortably high.  

I take consumer confidence to be a lagging indicator. I expect the consumer will come around when the economy starts to add jobs, which is imminent.  

The S&P 500 has made a nice move sine the early February lows. And I think we can expect to see more investors embrace stocks as employment numbers improve. As TradeMaster Daily Stock Alerts’ Jason Cimpl has told us, the S&P 500 has already taken out an important resistance level at 1,132, and should be on pace to make new 52-week highs above 1,150. We should be on the lookout for an upside surprise to an employment report soon.  

I received an interesting letter from a reader. Larry S. asked: We have shares of stock in Enviro Energy (China) and Petromin (Canada).  Friends say they will be doing well shortly.  What do you know about these stocks.  Are they worth holding onto?  Thank you for checking these stocks and your newsletters.  We enjoy reading them.  

Petromin (PTR.V) is a Canadian oil driller operating in China. And Enviro Energy appears to be a Chinese stock trading in Hong Kong (I’m not sure I’m looking at the right stock here).  

Because these stocks don’t trade on U.S. exchange, it’s difficult to get reliable financial information on them, and it’s equally difficult to get the latest news.  

I can imagine that drilling for oil in China could be very profitable. And I know that environmental and clean energy stocks are strong performers in China. But again, reliable information on these two companies is difficult to come by. What’s more, the chart for Petromin does not look good.  

For my subscribers’ money, I much prefer to recommend Chinese stocks that are listed on the NASDAQ and the NYSE. That’s because there are rules for these exchanges. Earnings reports have to follow certain guidelines, as does the dissemination of news.       

As you know, I have several Chinese stocks in the SmallCapInvestor PRO portfolio. We’ve got gains of 93% and 52%, and we also have one that’s down 30%. But because I can read the earnings statements and quarterly reports, I have no problem holding for more gains, or waiting for a loss to reverse.  

Chinese stocks have sold off some because the government is managing its economy to keep it from overheating. I’ve carefully selected the Chinese stocks for the SmallCapInvestor PRO portfolio to represent areas that are vital to China’s growth, like environmental protection and energy. I have no doubts that these stocks will continue to grow earnings and revenues. The stock prices will follow. 

So, to answer the question, I have no way to form an opinion of the stocks in question. I would recommend investing in Chinese stocks that are listed on a U.S. exchange.  

I understand a few Daily Profit readers were unable to take advantage of the 50% OFF sale for SmallCapInvestor PRO before we hit our sales goal and closed the sale.  

So in the interest of fair play, I’ve re-opened the sale until midnight tonight. Respond today and you can get a year of SmallCapInvestor PRO for just $99. It’s going to be a while before I offer such a discount again, so I encourage you to take advantage of this offer. Click HERE to get the details.  

And if you hurry, you’ll get my latest investment report during market hours. SmallCapInvestor PRO are buying a leading Smart Card company that’s got a forward P/E of 9, a PEG ratio of 0.4. The company does $59 million in annual revenue and has $3.45 per share in cash.  

With those shares trading for just $6.50, it’s extremely undervalued. But that’s not going to last. With over 900% earnings growth coming this year as the U.S. market opens up, this stock has tremendous upside potential.   

Here’s that link for SmallCapInvestor PRO again.