CWS Market Review – November 5, 2010

Welcome to the premiere issue of CWS Market Review!

And what a time to begin! The market had a spectacular day yesterday. The Dow jumped 219.71 points. The S&P 500 rose 23.10 points or 1.93% to reach its highest close in over two years. The last time we were at this level was September 19, 2008.

As strong as Thursday was, our Buy List did even better. Our 20-stock portfolio gained 2.24%. We’re now up 13.99% for the year (not including dividends) and 20.42% since the end of August. We’re on track for our fourth straight year of beating the market.

Let’s look at a few of our stocks. AFLAC ($AFL) hit a new 52-week high for us yesterday. The stock broke $58 per share. Fiserv ($FISV) is inches away from a new high. Reynolds American ($RAI) also made a new high for us yesterday.

The huge star for us yesterday was Wright Express ($WXS). By the closing bell, Wright Express had added 16.33%. That was enough to make it the fourth best-performing stock on the entire Big Board yesterday.

Let’s look at Wright’s earnings report. In July, they said to expect Q3 earnings between 65 cents and 68 cents per share. Ha! Try 72 cents. On top of that, Wright said to expect between 68 cents and 74 cents per share for Q4. The Street had been expecting just 59 cents. Obviously, business is going quite well for them.

Bottom line: I really like this stock, but let me warn you not to expect days like this every earnings season. I rate Wright a buy to $50.

I had been expecting earnings from Becton, Dickinson ($BDX) yesterday but the earnings report came out late Wednesday. Unfortunately, the stock became our first earnings miss of the season.

Although they missed the Street’s consensus by a penny ($1.24 to $1.25), they gave guidance for next year of $5.45 to $5.55 per share (their fiscal year ends in September). That’s higher than where the Street was and it means the stock is still a good value. All told, Becton gained 3.59% for the day. I think the stock is a good buy up to $80 per share. (By the way, on the website you can see a good interview the CEO did on CNBC.)

Lastly, Moog ($MOG-A) reported earnings of 71 cents per share which was one penny ahead of the Street. One year ago, Moog said to expect EPS for this fiscal year (also ending in September) between $2.15 and $2.35. They reiterated that in February. Then in May, Moog said to expect $2.35 per share which they reiterated in July. In the end, they made $2.36 per share. They now say to expect earnings for next year of $2.70 per share. Again, this is a good stock for the price. Moog is a solid buy up to $42 per share.

That’s almost it for our earnings report this season. Sysco ($SYY) is due next Monday. Leucadia National ($LUK) hasn’t reported yet but that’s not so important since they aren’t followed by any investment houses. With no expectations, you don’t have to worry about missing expectations.

I want to talk a little about QE2. My earlier prediction was totally, totally wrong. I thought the Fed’s plan would be smaller and the Street would be disappointed and sell-off. Fortunately, I was wrong. I had been hoping there would be some good buying opportunities with a sell-off, but I don’t mind being proven wrong by a nice gain for the Buy List.

My advice is to not get caught up in the economic debate about QE2’s effectiveness. The major point for us is that the Fed is on the side of the rally. They’ve openly told us that they want inflation expectations to go higher so companies will put their massive cash hordes to work. That means riskier assets ought to do well and that’s why we’ve done so well over the past two months. Our stocks are exactly the kinds that will do benefit.

The Fed has effectively lowered rates by about 50 basis points. The difference is that a normal rate cut happens at the short-end of the yield curve. Now it’s happening in the middle. My fear is that consumer deleveraging will mute any impact from QE2, but we’ll know more about that soon enough.

This morning we’ll get the jobs report. The easy bet has been to expect dismal numbers and I don’t see any reason for that to change. In particular, Wall Street is looking for growth in private sector jobs. I think the market really wants to rally, but it needs good news for conformation. We’ll also see if investors want to hold stocks over the weekend. For most of this year, Friday has not been a good day.

I also want to mention Ford ($F). Boy, I wish I had added Ford to the Buy List at the beginning of the year. The turnaround here is simply astounding. The shares closed at $15.86 yesterday. Two years ago, Ford bottomed out at $1.01. That’s right. Ford was nearly a penny stock! The story looks to get better and better. I hope to talk more about Ford in the coming weeks. I’ve already called Ford my “Stock of the Decade” (you have to get a jump on the competition).

Next week will be a slow week for economic reports. We’ll probably start to hear about the upcoming holiday shopping season. I think consumers have been holding back over the last two years so this could be a big season for holiday sales.

This week was about as hectic as you can get with the election, the Fed, earnings and jobs. Sysco ($SYY) reports on Monday. The Street’s consensus is for 51 cents a share. I also want to remind you that Reynolds American ($RAI) will be splitting 2-for-1 on November 16. This is an excellent stock. Don’t worry about waiting for the split to get into RAI.

I’ll have more market analysis for you in the next issue of CWS Market Review!

Best – Eddy

Posted by Eddy on November 5th, 2010 at 7:27 am

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.