The market just won't stop going higher. The Dow and S&P 500 continue to make new highs and the Nasdaq is following suit, closing the trading week at the highest levels we've seen in over twelve years. The S&P 500 gained 2% this week, outperforming three of out of five of the stock recommendations in last week's Weekend Rundown. We saw a move away from the miners and cyclical names and new money flow into technology, financials, and the defensives. All of last week's recommendations remain intact with different investment horizons:
- Cliffs Natural Resources (NYSE:CLF) - recommend holding long-term (through the end of 2013) for a play on the mining recovery
- The Gap (NYSE:GPS) - recommend holding long-term (through the end of 2013); strong fundamentals and increasing investor/consumer confidence in the brand
- Genworth Financial (NYSE:GNW) - recommend holding long-term (through the end of 2013); priced way under book value and ready to capitalize on continued housing recovery
- Stratasys, Inc. (NASDAQ:SSYS) - investors can take some profits off of the table here, but recommend holding this stock long-term (three years) for a breakthrough industry performance
- Yahoo! (NASDAQ:YHOO) - recommend holding medium-term (1-3 months) until fair valuation is reached.
Here are this week's picks:
James River Coal Company (JRCC)
Here's a potential way to lose a lot of credibility - make the first of the week's recommendations a stock that could potentially go bankrupt if there isn't a recovery in the coal industry really, really quickly. With that risk, though, comes a more-than-severely depressed stock. Shares of JRCC have shed over 90% of their value in the past two years, but after reaching a trough of $1.46 last month, share have rallied nearly 67% and closed this week at $2.44. The stock ended the week on a nice rally - at one point during Friday's trading session, JRCC was trading up 25% on news that the company successfully transferred its 2015 notes to longer-term debt due in 2018. This significantly reduces the worry of bankruptcy for the beleaguered coal miner, which is the reason shares have taken such a dive during the past fiscal year. With that fear somewhat alleviated, look for JRCC to reach $4 in the near-term. If the broader coal market continues to show signs of resiliency and improvement, JRCC could trade at $10 by year's end. This is a speculative play, though, as the stock is known to swing 20%+ in either direction on a daily basis.
QCOM is a terrific story and has been one of my core holdings for some time now. The company continues to deliver strong results, beating estimates on 11 of their past 12 quarterly earnings reports. Additionally, they're primed to capitalize on the exponential growth that is still happening in the smartphone/tablet world - while our world is undergoing a technological shift from fixed to mobile and most technology companies are duking it out for hardware and software supremacy, QCOM is quietly harvesting a tremendous market share of the semiconductor space. QCOM is the best in breed in its industry, and the industry just so happens to be one of the hottest in the market. This company is a winner and so, too, will be the stock - it has recovered from its post-earnings drop (I'm fortunate for the drop, because with such stellar earnings, I doubled my position) and is primed to break out of the range it has traded in for over three months. I recommend holding this stock for the long-term (through the end of 2013) with a price target of $83.
S&P 500 VIX Short-Term Futures (NYSEARCA:VXX)
This here is a pure speculative play that should be kept on a short leash during the upcoming trading week. The broader markets rose another 2% this week, as noted, closing at all-time highs. Trading on the S&P 500 has broken through the Relative Strength Index level of 70, typically known as the "overbought" level. While I believe that our financial markets (and stocks in particular) are on solid fundamental ground, look for a pullback this week, target price of $19.20.
HollyFrontier Corp. (NYSE:HFC)
HFC is an oil refiner - using petroleum as the input, the company operates plants that convert that oil into lighter products such as gasoline, lubricants, and jet fuel. This is a value play here, and though the stock has seen a precipitous rise (nearly 70% annual return), there is still room to go. The company announced yesterday a special cash dividend as well as a quarterly cash dividend, both with the ex-dividend date of 05/24/2013, which precipitated a 4.4% gain in shares to close out the week. The company's input costs are sinking while their finished product prices are rising - expect this stock to trade close to $60 in the medium term (1-3 months).
Despite the terrific performance this stock has had recovering over the past three years, there is still room to grow with a long-term investment horizon. M continues to be the industry-leading retailer, both in terms of far-reaching experience and accessibility as well as profitability. The company sees higher gross, operating, EBITDA, and net profit margins than nearly every company in the retail industry. Additionally, the company has most of its exposure tied to the United States - with the continued support of the FOMC and their QE policy (and the fact that it doesn't look like it is going away any time soon), M will continue to be rewarded by increased consumer cash flow. The company sports a 2% yield and has beaten on the last twelve earnings reports. M is a must-have in a diversified portfolio, a long-term investment with a price target of $58.
Disclosure: I am long GNW, CLF, JRCC, QCOM, GPS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.