In a week filled with heavy earnings announcements we saw the broader market as measured by the S&P 500 gain 0.71% and finish at another all-time high. Despite finishing at all time highs there were a batch of disappointing tech earnings from Intel (INTC), Microsoft (MSFT), and Google (GOOG). I have to admit it is becoming increasingly tough to find excellent stocks right about now and with the market at all time highs the only buying I did this week was in insurance company Cincinnati Financial (CINF) and in oil explorer Occidental Petroleum (OXY). I've held Occidental and Cincinnati Financial in my portfolio for quite some time right now and I only chose to buy some more of them because I chose to reinvest the dividends. Let's take a look-see at each one individually really quick and find out if we can pick up some more shares using actual capital rather than reinvesting dividends.
While the S&P 500 was up 0.71% for the week of 15Jul13, Cincinnati Financial mirrored the market and was up 0.75%. The purchase I made on the stock was not of the additional capital variety, but was of the reinvested dividend kind. No news happened at the company which explains why it mirrored the broader market, but in the past month it has been up 9.41% compared against the S&P 500's 6.54%. Cincinnati Financial is fairly valued at the moment based on future earnings (P/E of 21.51) but really expensive based on growth (PEG of 6.74) and PEG of 2 or less. Personally I like to buy on future earnings of 17 or less.
The last time I wrote about the company on 11Jun13, I said, "The technicals tell me if the stock can grab some upward movement I see it going to $48.36. If the stock continues its current downward trajectory I'd look for $44.89 to act as a floor of support. There is some downward pressure on the stock but it looks like it is flattening out and can have a pop in the near future." Certain enough the stock did drop to a closing low of $44.77 on 24Jun13 and has been moving up ever since. Since there hasn't been any news to drive the stock's price up so much against the S&P 500 I'd like to take a quick look at the technicals right now to see what's happening after this big run up in the stock this past month.
The relative strength index chart is indicating that the stock is near overbought territory with a value of 67.72, but when looking at the moving average convergence-divergence graph at the bottom we see the black line is above the red line with the divergence bars decreasing in height which tells us that there is selling momentum. Looking at the price chart itself it has blown through all resistance levels and we're at an all-time high in the stock, so I would expect past resistance at $48.47 to now act as support. I honestly see the stock moving down just a little bit more to that support level. If it can't hold support at that level it can possibly test $47.20.
While the S&P 500 was up 0.71% for the week of 15Jul13, Occidental was up 2.06%. The purchase I made on the stock was not of the additional capital variety, but was of the reinvested dividend kind. This uptick in the company more than likely correlates to the increase in crude for the week which moved from $105.30 to $108.51 on the week for a 3% increase. The company struck a deal with Qatar Petroleum to continue development of the Idd El Shargi North Dome Field which involves drilling 200 additional wells with the investment coming to more than three billion dollars.
If you believe the European economy is on the rebound, the Chinese economy is steady, and the American economy is going to continue to grow then you must believe in increased oil prices which can bode well for a company like Occidental. Occidental is inexpensively valued at the moment based on future earnings (P/E of 12.36) but expensive based on growth (PEG of 3.14). Personally I like to buy on future earnings of 17 or less and PEG of 2 or less. But I would like to take a technical look to see if right now it is a good buying opportunity or if I should wait to the near future. I'd like to take a quick look at the technicals right now to see what's happening with the stock because since the beginning of June it has done absolutely nothing (up 0.02%).
The relative strength index chart is indicating that the stock is beginning to be bought with a value of 57.84 and upward trajectory, and when looking at the moving average convergence-divergence graph at the bottom we see the black line is above the red line with the divergence bars increasing in height which tells us that there is buying momentum. Looking at the price chart itself I see $93.40 acting as resistance and if it can get past that value I believe it can get to $97.58. I also see support at $90.48, but if it drops through there it can go to $86.31 which I calculate to be a risk/reward of -6.28% and 5.96%. Though the risk/reward ratio is about equal I'm going to take the chance and buy some more of Occidental because of what the RSI and MACD charts are saying.
With the tech wreck that happened this week we saw Microsoft plunge 11.4%, Google drop 1.55%, and Intel lose 3.75% after all of them missed on earnings and revenue. The tech sector is still difficult to navigate these days and that's why I'm continuing to stick with the stock plays that play in the everyday lives of consumers such as oil and gas and insurance.
Though Cincinnati Financial seems to be exhibiting the symptoms of a double top it is a high yielding insurance play which can keep you in the game until it figures out if it can break out of its all-time high, I'm personally going to hold off on buying anymore shares right now. Occidental on the other hand is a stock which I will be buying more of at the current price because I believe the price of oil is going to continue to rise and take Occidental with it. Since it is earnings season we have to be cognizant of when our companies are reporting, Occident reports on 30Jul13 while Cincinnati Financial reports on 26Jul13.
Disclaimer: These are only my personal opinions and you should do your own homework. Only you are accountable for what you trade and happy investing!