After 10 consecutive days of new highs on the Dow Jones, the S&P 500 is finally closing in on its new high. As a result, there is a lot of controversy, or opinions, surrounding what will happen after the S&P 500 creates new highs. Some believe the markets will rapidly reverse, others expect a continued rally until the Dow hits 15,000, and then there are many who expect many months of flat trading. Regardless of how the market trades, you need to be prepared and continue to seek opportunity and value in the markets.
Last week (click here to view last week's article) I wrote about positioning yourself to expect a pullback, all the while being prepared for the market to trade higher. This is an important concept, one that many confused investors are struggling to grasp. With that being said, I showed you last week how I am preparing for a reversal (while still ready to capitalize on an uptrend) with biotechnology holdings. In this piece, I am taking a look at more stocks that look attractive and likely to trade higher. Of course I will continue to review the overall market, list any changes to my portfolio, but will focus mostly on stocks that you may want to watch in the week ahead.
A Look at the Market
For the most part, it was global news that dictated the trend of the market during the last week. On Monday we saw a huge drop on big-ticket items such as turbines and boilers when Japan released its first machinery order drop in four months. This is a major indicator of capex, although its meaning is mixed, as some say it could be the start of a larger problem - and others believe it's only due to a weak Yen; the data itself was still closely monitored. In Europe, Germany's trade surplus was consistent with expectations and the UK's industrial production continued to show weakness. However, in the U.S., better-than-expected jobless claims helped to push the market higher, as we are currently on a 10-day win streak on the Dow Jones.
While economic news was somewhat quiet last week, we did see some market-moving company-related news. One of the bigger stories was from General Electric (GE), as the company announced plans to return $18 billion to shareholders this year alone through dividends and buybacks. We also saw a strong quarterly performance from Costco (COST) and news of an $18 billion order for Boeing (BA) to build 200 jets. In mobile, Samsung unveiled its new Galaxy S IV, and BlackBerry (BBRY) saw massive gains after it received an order for one million BB10 phones. This is great news for the company and could be an indication that demand could meet the high expectations and optimism surrounding the company.
A Look At My Portfolio
As we head into the next week, I continue to feel strongly about the positioning of my portfolio, for both safety and gains. In fact, my only position change was with Spectrum Pharmaceuticals (SPPI), as I finally said goodbye to a management team that, after months of denial, admitted that generic pressure is hurting sales of Fusilev. It's kind of funny how this was all of a sudden noticed just a month after the company said that sales would rise in 2013. In my opinion, the stock is in for a long journey, and will have to deal with law firms, analysts and hopefully the SEC after lowering its guidance and causing investors to lose a significant amount of their investment. Therefore, I don't think this is a trustworthy company, at this point in time, and I do not believe that this sudden decline in sales was not known last month when the company reported earnings.
A Look at Next Week
While last week I spent a lot of time looking at my biotechnology holdings and explained the process of diversification, I want to spend the majority of this week looking at several stocks that look attractive. Last week was really good as four of the five selections significantly outperformed the market. With that being said, the "look at next week" is not intended to be a short-term trade, but rather a list of stocks that I believe to be undervalued, safe in this market, and that could trend higher. Like I said, for this upcoming week I see a lot of different attractive plays in the market.
- The first stock on the list is one that I find very attractive as a long-term investment, and also one that I believe could see a short-term pop, and should be somewhat safe regardless of market direction. The company is NeoStem (NBS), which I call one of the more trendy stocks in the market. Last week I had a 30 minute conversation with Stephen Potter, who is now a board member for NeoStem, but was most recently the Senior Vice President of Operations and Corporate Development at Osiris Therapeutics (OSIR). Potter has great insight and is very excited about the company and its prospects, and after our discussion, I was more optimistic than ever regarding the company's future. Furthermore, I think the news of the company passing its second safety review and its expansion of intellectual property is very encouraging. With the stock bouncing off a fairly significant downtrend and now trading in the middle of its range, I think it's very likely that NeoStem trades higher next week, and that now is a good price to initiate a long position with data and another solid quarter of growth looming.
- Dollar Tree (DLTR) is another stock that I like regardless of market direction. In fact, it has historically performed better when the markets are flat or are trading lower. The reason is because it is a company that benefits from consumers wanting to save money. This is a company that recently announced earnings, with top line growth of 15.45% and bottom line growth of 21.70%, which pushed its shares higher. As you can see, the stock had seen a correction of sorts over the last six months, but after a strong quarter the stock has popped higher. Right now, I like the trend of this stock, as most stocks that pop after earnings typically find a level of flat trading before trending higher. Therefore, I would watch Dollar Tree for both short-term gains over $46.00 and also a long-term trend higher.
- For the last year, if you would have bought and sold on the dips of Galena Biopharma (GALE) then you would have made a lot more money than myself with a buy and hold strategy. From the looks of it, there are a lot of people playing the trend, trying to buy at the bottom and ride it higher for a quick 20% gain. Therefore, after touching a price of $2.17 on Wednesday the stock fell lower on Thursday to a low of $1.93. If you look at the chart above you can see that since January 7 we have seen four pops and drops. However, the highs and lows have always been higher than the previous trend. This is encouraging to long-term investors such as myself, because although there is risk associated with the stock, there is also a tremendous amount of upside for this $130 million Phase 3 company. In my opinion, all risk is priced into the stock and I expect a significant run higher ahead of data later this year. Because after all, with all patients optimally dosed, receiving boosters, and with NeuVax being used on the correct patient population, results could be better in Phase 3 than in Phase 2. GALE will be interesting to watch next week in particular, as it will be presenting at the 25th annual ROTH conference on Monday, and could see a nice bump with the stock being at the bottom of its current trend.
- The next year is pretty simple for shares of BlackBerry. If there is good demand for the BB10 then shares will go much higher, and if not then shares will fall. While it is impossible to know for sure, there is reason to be optimistic following the one million BB10 order, and furthermore I think its trend is looking attractive. In the past, BBRY has had a tendency to trade flat after a large day's pop, but then many times will continue to trend higher after the slight pullback/flat trading. In my opinion, the one million BB10 order was the most significant news for BBRY throughout the last six months, because it is fundamental proof that there may be high U.S. demand. Personally, I am yet to take any positions in this stock. However with a price/sales of 0.64, the stock has a lot of room to run higher if sales are strong.
- Much like I was explaining with Dollar Tree, after a stock sees a nice post-earnings bounce it tends to find a trading range, but often breaks through that range several weeks or even months later to trade higher. Right now we are seeing this with Rite Aid (RAD). The stock saw a massive 20% move higher back in December after posting a quarterly profit. As a result, investors now believe its restructuring efforts are paying off, as the company becomes more efficient. The good news is that if Rite Aid is fundamentally improving in efficiency then it could more than triple and still be twice as cheap as competitors Walgreen or CVS Caremark compared to sales. This is a very cheap stock, and on Thursday it broke through the $1.72 resistance with ease and blew past $1.80. Therefore, I'd keep an eye on this stock for a larger trend higher.
- Anika Therapeutics (ANIK) has seen one of the quieter moves higher that I've seen this year. In 2013 it's trading with gains of 43% after posting Q4 earnings that easily exceeded EPS expectations and posted revenue growth of 23%. Last year there was a lot of pessimism surrounding this small company, but now that pessimism has been shifted to optimism there is a lot of upside potential for this stock. Currently, it looks to have found a steady trading range. But with U.S. growth of 42%, I'd watch it to break through and eventually test 2012 highs in the near future.
- On Thursday, shares of energy company Chesapeake Energy (CHK) exceeded previous resistance of $21.50 to trade over $22.00. The stock remains cheap with a price/sales of 1.12 and a forward P/E ratio of 12.02. Thus, it could become a stock of choice if natural gas prices continue to rise and inventories stay low, combined with the low price of crude and rising or stabilizing prices at the pump. Right now, the market is priced to benefit companies such as Chesapeake - and with it exceeding this resistance, it is very possible that the stock will continue to rise.
- Netflix (NFLX) is bound and determined to cross $200.00, and continues to march closer. For the last month the stock has fluctuated between $180.00 and $195.00; however there isn't much doubt that NFLX will eventually cross $200.00. The question is, what will happen after $200.00 is crossed? The last time NFLX reached $200.00 on an uptrend was during 2011 and back then the company was much different. If we look at the full-year of 2011 the company returned sales of $3.2 billion and operating income of $376 million, operating margin of 11.7%. For the last 12 months revenue has increased to $3.61 billion, growth has slowed, and the company's operating margin has been just 2.47%. However, there are reasons to be optimistic, as the company becomes more "social" and focuses on global growth. Therefore, I would continue to watch the stock closely, as sentiment has obviously changed, but would be careful after the level is crossed due to the speed at which optimism can shift.
- Lastly, watch both Bank of America (BAC) (chart above) and Citigroup (C) (chart below) next week. Bank of America will be closely watched at $12.30 because it has reversed from this level on two different occasions during the last two months. Citigroup showed resistance at $47.80, and as both stocks inch closer it will be interesting to see how the market responds. Because even after large runs higher, both stocks are still very cheap compared to book values per share. If the market continues to rally watch for these two stocks to exceed resistance and trade higher.
The markets are trading in uncharted territory, which is both exciting and also scary for the average retail investor. Those invested in the market are making a great deal of money, although with there being so many economic problems, and potential problems that lie ahead, investors must be careful to enter the market with caution, and with a plan of action.
This plan of action doesn't have to include any specific industry or investment, but does need a good exit strategy, and requires an eye for stocks that present value compared to the market. As a result, I will be writing a weekly piece to share my opinions and to help you navigate this crazy market and to find potential value. I will include a look at the valuation of the market, any changes to my own portfolio, and a review of stocks that might be presenting value. You can then take the information and use it as you wish to seek and hopefully capitalize on opportunity.