This earnings season is turning out to be better than expected with a respectable 60% of companies beating earnings estimates. I posit this news coupled with the quantitative easing and stimulus actions taken by the U.S., China, Europe, Japan and many other central banks around the globe will underpin global growth prospects.
The U.S. economy is still the driver for the globe. With the housing and car industries reporting better than expected sales numbers, I posit the rest of the world will begin to show signs of growth as well. I have selected five stocks to review I believe are poised to rally as the global growth improves.
In the following sections, we will perform a review of the fundamental and technical state of each company as well as any catalyst for growth. The following table depicts summary statistics and Monday's performance for the stocks. The following charts are provided by Finviz.com.
Alcoa, Inc. (AA)
The company is trading 12% below its 52-week high and has 9% upside potential based on the consensus mean target price of $9.50 for the company. AA was trading Monday for $8.7, up almost 1% for the day.
AA has some fundamental positives. AA pays a dividend with a yield of 1.40%. The company is trading for a price to book ratio of .69 and a price to sales ratio of .39. AA has a forward P/E of $11.81. EPS is up over 56% quarter over quarter and expected to rise by 66% next year.
Technically, AA has been in a long-term downtrend for the better part of a year. Nevertheless, since mid-April the stock has been on a tear. The stock just broke through a major resistance level at the 200-day sma.
Alcoa stated on its recent earnings conference call that the outlook for Chinese growth was 8 to 10%.
With the market trading at all-time highs, many stocks are currently overbought. I posit investors may begin taking profits in their winners and rotating into stocks like AA. The company is growing EPS quarter over quarter. This one is a buy right here.
Bank of America Corporation (BAC)
The company is trading on par with its 52-week high and consensus mean target price of $13.05 for the company. BAC was trading Monday at $12.88, up over 5% for the day.
Fundamentally, BAC has several positives. The company has a forward P/E of 9.49. BAC has an improving net profit margin of 7.28%. BAC is trading for a price to book ratio of .60. Insider ownership is up by 35% over the last six months. EPS next year is expected to rise by 33% and up significantly quarter over quarter. The company pays a dividend with a yield of .33%.
Technically, BAC is showing signs of strength and recently spiked upwards. The stock just bounced back after selling off 8% which is positive. The stock has been in a solid uptrend since mid-July.
BAC spiked over 5% Monday. The bank resolved a long-running litigation dispute with MBIA Inc. (MBI). BAC will pay $1.6 billion in cash to and receive the right to buy a 4.9% stake in the bond insurer. This was great news for both companies.
Even after the recent spike, BAC still has considerable upside potential. The company has strong fundamentals and catalysts for growth. BAC still has a fortress balance sheet and strong cash flow providing the opportunity for additional share buybacks and/or dividend increases in the future.
BAC is a solid buy at this level if the U.S. housing and automobile markets continue to improve. BAC seems poised for solid growth. I like the stock here.
Citigroup, Inc. (C)
The company is trading on par with its 52-week high and has 12% upside potential based on the analysts' mean target price of $53.62 for the company. Citigroup was trading Monday at $47.11, up nearly 1% for the day.
Fundamentally, Citigroup has several positives. The company has a forward P/E of 8.92. Citigroup has a price to book ratio of .75. The company has a PEG ratio of 1.22 and a net profit margin of 12.37%. EPS is up 31% quarter over quarter.
Technically, the stock is in an uptrend and trading at the mid-point of the channel. The golden cross was achieved at the beginning of October. The stock looks solid technically.
The recently released Case-Shiller survey reported home prices increased 9.3% year over year for the twenty city composite. This was the fastest gain in seven years. Nationally, prices are back at autumn 2003 levels and about 30% below their summer 2006 peaks. Citigroup may be more levered than any other large bank to the home price recovery due to the amount of mortgages still on the books.
Citigroup's board just approved a $1.2 billion stock repurchase program through the first quarter of 2014. The announcement was made in conjunction with the declaration of the $0.01 quarterly dividend.
Citigroup should benefit greatly from its focus on cost cutting and the resurgence of the US housing market. Citigroup looks poised for solid earnings growth in 2013. I like the stock here.
Cliffs Natural Resources Inc. (CLF)
The company is trading 63% below its 52-week high and has 14% upside potential based on the consensus mean target price of $24.20 for the company. Cliffs was trading Monday for $21.12, up over 6% for the day.
Fundamentally, Cliffs has several positives. Cliffs pays a dividend with a yield of 2.86%. The company has a forward P/E of 10.61. Cliffs has a price to book ratio of .65. Insider transactions are up 20% over the last six months.
Technically, Cliffs is in a long-term downtrend yet recently spiked higher recently. The stock is trading just 25% off its 52 week low.
Cliffs has been beaten down severely in recent weeks. With the change of the quarter, it seems a rotation into the beaten down materials sector has begun. This bodes well for Cliffs as it is one of the most beaten down of the major basic materials players. The risk/reward at this level seems favorable. I like the stock here.
General Electric Company (GE)
The company is trading 5% below its 52-week high and has 12% potential upside based on the consensus mean target price of $25.33 for the company. GE was trading Monday at $22.60, slightly up for the day.
Fundamentally, GE looks solid. GE's forward P/E is 12.41. GE's quarter-over-quarter EPS is up 14%. GE's net profit margin is 10.35%. GE pays a dividend with a yield of 3.37%.
Technically, GE has been in an uptrend since bouncing off a low of $18 in June. Recently, the stock took a nose dive after earnings were released. Nevertheless, the stock is at the lower end of the uptrend channel and has bounced back in recent days.
GE reported first quarter EPS of $0.39 beating estimates by $0.04. Revenue of $35 billion beat estimates by $0.3 billion. GE CEO Jeff Immelt stated,
"GE's markets were mixed with strength coming from the U.S. and emerging markets but Europe showing weakness. Industrial sales were $22.3 billion, down 6% year over year, led by a drop in power and water revenue."
GE's equipment and services backlog has risen to a record $216 billion. GE raised its authorized stock buyback to $35 billion and plans to buy back $10 billion worth of shares in 2013. I like the stock here, yet would definitely layer into any position.
The Bottom Line
I posit these stocks present excellent buying opportunities. Nonetheless, markets incessantly gyrate, the only constant is the fact that they always go up over the long haul. Look to buy on dips. These are long-term investments. The risk reward ratio for a long position in these stocks is currently favorable. There will be more volatility in the market going forward though. Remember, we are sitting at all-time highs.
If you choose to start a position in any stock, I suggest layering in a quarter at a time at a minimum to reduce risk and always have a well-balanced diversified portfolio. Furthermore, this is only a starting point for your own due diligence. Never forget, you need to determine for yourself if these dogs can hunt.
Additional disclosure: This is not an endorsement to buy or sell securities. Investing in securities carries with it very high risks. The information contained within this article is for informational purposes only and is subject to change at any time. Do your own due diligence and consult with a licensed professional before making any investment.