Seeking Alpha
Long/short equity, special situations, momentum, growth
Profile| Send Message|
( followers)  

We are in the thick of earnings season and numbers are flying. Thus far we have been pleased by many of the names reporting, although we are beginning to notice patterns that we believe indicate strength and weakness in the overall economy. Industrials are doing quite well as a true upswing in the business cycle is underway. Businesses are replacing equipment at a rapid rate, think airplanes and automobiles as examples, while service sectors struggle, think retail and some restaurants.

It is becoming quite obvious to us that these conflicting data points are pointing to the lack of hiring by Corporate America and that is surely keeping the economy from growing at a much faster rate. This will be something to pay close attention to moving forward.

Chart of the Day:

If acquisitions can put a spark in the smaller names on the Nasdaq while at the same time turning out to be smart moves by 'Big Tech' which turn out to increase margins and profits, then we could see the broader index rally. If you pair a tech rally with the biotech rally that has been underway for some time now, breaking through the 3,600 level is hardly a problem and taking out 3,700 seems quite realistic.


(Click to enlarge)

Source: Yahoo Finance

We have economic news due out today and it is as follows:

  • MBA Mortgage Index (7:00 a.m. EST): N/A
  • New Home Sales (10:00 a.m. EST): 483k
  • Crude Inventories (10:30 a.m. EST): N/A

Asian markets finished mostly higher today:

  • All Ordinaries -- up 0.34%
  • Shanghai Composite -- down 0.52%
  • Nikkei 225 -- down 0.32%
  • NZSE 50 -- up 0.41%
  • Seoul Composite -- up 0.42%

In Europe, markets are trading higher this morning:

  • CAC 40 -- up 1.10%
  • DAX -- up 0.78%
  • FTSE 100 -- up 0.82%
  • OSE -- down 0.01%

Financials

After yesterday's earnings announcement from Traveler's, we feel quite comfortable with the financial stocks we have continued to be bullish about. In fact, yesterday we saw new 52-week highs in both American International Group (NYSE:AIG) and TD Ameritrade (NYSE:AMTD). The AIG play has been a low risk, high return long-term call which we expect to continue to outpace TD Ameritrade over the long-term. The company continues to clean its balance sheet and grow profits and dividends should begin to flow for investors soon. With the company focusing on its traditional insurance business and having dumped the financial weapons of mass destruction we like this name both short-term and long-term at these price levels.

Since we highlighted the company shares have increased at a healthy rate. So long as the market remains healthy, so too shall the discount brokers.


(Click to enlarge)

Source: Yahoo Finance

When we highlighted TD Ameritrade among the discount brokers, we liked it because this was not only a financial play, but a low risk call on the market turning bullish. Shares have since turned higher as competitors have reported solid results and hit the 52-week high we referred to earlier on the back of the company's very own results. What we thought would happen has, with trades per day up 12% year-over-year and interest income rising as well. The company continues to see growth in its institutional business with most of the new client assets reported by the company actually the result of the institutional unit. Cash in client accounts is down from the levels seen during the 'Great Recession' but still high and it is our view that the cash offers further ammunition to propel earnings and revenues higher.

Biotechnology

Although we have talked about BioCryst Pharmaceuticals (NASDAQ:BCRX) the past two days, we wanted to bring it to readers' attention again this morning. Shares rose $0.80 (21.51%) to close at $4.52/share on volume of 13.97 million shares after JMP Securities raised its price target on the company's shares from $3/share to $5/share. We do not want readers to lose sight of where the stock has come from and the huge gains over the past few days, so once again we want to recommend caution.

There has been a huge run lately and as BioCryst nears the new price targets, there is little room to run. Be careful here ...


(Click to enlarge)

Source: Yahoo Finance

Technology

Yesterday's acquisition of Sourcefire (NASDAQ:FIRE) by Cisco highlights what we have been discussing about the tech industry for some time now. The big companies are buying smaller companies to fill out their product offerings and these bolt-on acquisitions are enabling the next generation of Big Tech's products and services. This was a fairly large acquisition compared to what many companies have been buying, and especially large when looking at what Cisco has done in the past.

Cisco did hint that they may need to grow their cybersecurity business via acquisition which would make this merely the first in what could be a long line of security focused acquisitions. Yesterday's move may trigger the beginning of a larger consolidation wave in the sector, and one of those necessary underlying currents that would help the Nasdaq reach new highs.

We still think this is a buying opportunity for investors looking for what we believe is the best way to play the growing worldwide smartphone adaptation.


(Click to enlarge)

Source: Yahoo Finance

This morning we caught the end of an ARM Holdings' (NASDAQ:ARMH) executive's interview on CNBC where he answered the last question with something along the lines of, and we paraphrase here, "no we are not worried... as we are in just about every smartphone out there today." The anchors had apparently been asking him about competition from Intel and how slowing growth at names like Samsung and Apple would affect them. Well that has been our logical all along, but when we looked at the company's earnings, we were pleasantly surprised. Although EPS were in-line, the company did beat on revenues while simultaneously reporting a 10% increase in order backlog. Gross margins were down to 94.3% from 95.1% on the quarter, which will be something to watch moving forward. Also pleasing to investors is the Board's move to raise the dividend by 26%, and although this is not an income stock, the dividend does pad total return and that is what is important.

Source: Today's Market: Earnings Continue To Push These Names Higher