The housing sector exhibited another pullback this week with the SPDR S&P Homebuilders ETF (XHB) declining 3.83% due to a decline in orders and order cancellations with the culprit being rising interest rates. This rise in interest rates also kept the market mute this week as measured by the S&P500, which was down -0.03% for the week. Last week I wrote that it was a tough week to find any great stocks and this week proved to be the same with the only buying I made in the portfolio was through dividend reinvestments in General Electric (GE) and Cisco (CSCO). I've held General Electric and Cisco in my portfolio for quite some time now and I only chose to buy some more 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 down -0.03% for the week of 22Jul13, General Electric was down -0.28%. 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 traded with the broader market, but in the past month it has been up 5.7% compared against the S&P 500's 4.86%. General Electric is inexpensively valued at the moment based on future earnings (forward P/E of 13.51) but fairly valued based on growth (PEG of 1.61). Personally I like to buy on future earnings of 17 or less and PEG of 2 or less, which makes General Electric in my sweet spot.
The last time I wrote about the company on June 17,2013, I said, "If the stock can break free of the 20-day moving average I can see it going to $24.27, but if it can't I see it going down to $23.18 for a risk/reward of -1.45% to 3.19%." Certain enough the stock did drop to a low of $22.76 on June 24, 2013 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 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 64.34 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 decreasing in height, which tells us that there is selling momentum. Looking at the price chart itself, after reporting an excellent quarter it has hit resistance at $24.90 so I would expect the stock to drop in the short term and test the support level of $24.04 for now.
While the S&P 500 was down -0.03% for the week of July 22, 2013, Cisco was down -1.24%. The purchase I made on the stock was not of the additional capital variety, but was of the reinvested dividend kind. The company has been trading in tandem with the technology sector, which has been really weak of late. During the week Cisco announced that it will purchase Sourcefire (FIRE) for $2.7 billion at $76 per share. Sourcefire provides intelligent cyber security technologies worldwide and is an excellent growth company projected to grow earnings 24.11% for the next year and 21% for the next 5 years! This acquisition will most certainly do well for Cisco in the future.
Cisco is inexpensively valued at the moment based on future earnings (forward P/E of 12.08) but fairly priced based on growth (PEG of 1.57). Personally I like to buy on future earnings of 17 or less and PEG of 2 or less, which makes Cisco desirable to me. The last time I wrote about the company on June 27, 2013, I said, If the stock can break free of the 20-day moving average I can see it going to $25.77". Certain enough the stock did break free of the 20-day moving average and went as high as $26.09 on July 18, 2013. Fortunately I bought shares right before the ex-dividend date to realize this gain. I'd like to take a quick look at the technicals right now to see if I can pick up some more shares.
The relative strength index chart is indicating that the stock is near overbought territory with a value of 60.66 and when looking at the moving average convergence-divergence graph at the bottom we see the black line is below the red line with the divergence bars increasing in height to the downside, which tells us that there is selling momentum. Looking at the price chart itself, $25.32 is acting as support so if it breaks below that I can see it testing $24.74. But if $25.32 maintains is support status I see the price of the stock rising with the 20-day moving average, but my inclination right now is that the stock will break support.
With the broader market muted this week and bearish short-term technicals in almost every stock in the universe these are definitely times to be patient. Both General Electric and Cisco are excellent value and dividend growth companies but the technicals are just not allowing for a good entry point at the moment. Wait for the most opportune time and then pounce on them if you are in these two names.
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!