Four Stock Ideas for This Market

Riding a wave of positive corporate announcements — among them, CISCO (Nasdaq: CSCO); The Blackstone Group (NYSE: BX); Coca Cola Bottling (Nasdaq: COKE); and Dynergy (NYSE: DYN) — and a number of positive economic releases, the market bullied its way through resistance to make net gains every day last week for the S&P 500. The result was a 3.2% gain for the S&P and consistent strong market action through all cap/styles and all sectors.

The strength continued Monday with the S&P 500 up over 2% without even a hiccup. I have to admit that I’m impressed with this market right now.

The leading cap/style was Small-cap Growth, up 4%; the laggard was Small-cap Value, up a respectable 2.3%. Fueled by a declining dollar, Materials was the leading sector, up 6%, but the two defensive sectors that brought up the bottom — Utilities and Consumer Staples — were not exactly slouches, gaining 2% each.

Click here to see the Market Stats.

The bottom line is that a treat was had by all, unless, of course, you happened to be one of the 10.2% Americans who remain unemployed. And that remains the most negative element hanging over the market’s seven month rise since March 6, a rise that now totals more than 63%.

Bulls Prevail, at Least for Now. The prevailing bullish view is that the increase in productivity and the gains in the ISM Manufacturing Index were far more important than unemployment rising above 10%. I do not agree with that assessment, but then again I don’t get to decide what the market is going to do. And in fact, at Sabrient we like to build portfolios in which market direction doesn’t matter.

It is good news that in the Q3 results, which are now more or less wrapped up, about 75% of all companies met or beat earnings estimates. Q3 was also much improved over Q2 in that nearly 50% of all companies met or beat their revenue estimates.

What Does This Market Want? Taking a forward look, the Sabrient SectorCast rankings are pointing toward positive gains ahead for the Telecom and Healthcare sectors. I would be bit cautious about Healthcare until this world-changing legislation gets through Congress but would continue to favor Telecom, Technology and Consumer Staples. I continue to be skeptical of Materials due to its surge driven by the declining dollar, which may or may not continue, and the fact that valuations are currently the most extended of all sectors according to our models.

Given the unemployment number and the continued risk in our financial system, I recommend continued bargain-hunting in the Telecom, Technology and Consumer Staples sectors. And you can stick with your favorite caps since they all seem strong at this time.

4 Stocks Ideas for this Market. This week, I ran a MyStockFinder search (http://MyStockFinder.com) using the Small Wonders preset search. I included small caps as well as micros, and I slightly upweighted Technicals and Insider Buying. I also limited the sectors to the three identified above: Telecom, Technology, and Consumer Staples. Here are four stock ideas that perked my interest:

Nortel Inversora (NYSE: NTL) – Telecom
InterDigital Inc. (Nasdaq: IDCC) – Technology
Changyou.com Ltd. (Nasdaq: CYOU) – Technology
Nash-Finch Co. (Nasdaq: NAFC) – Consumer Staples

Full disclosure: David Brown does not hold any of the stocks mentioned in this week’s “4 Stocks to Consider.”

Comments

[absolute return guy]

Market is proving as always that I don't have a clue. I will check these 4 stocks out. Any thoughts on some weak stocks as well for short or puts? I like to be covered on both sides so while I appreciate the 4 long ideas it would be nice to get some indication of what you consider a weak stock as well.

Thanks for the column.

2009 Nov 10 01:14 PM

[David Brown]

Hi,

Sabrient's chief business is supplying short ideas and portfoilio hedges to major asset managers and hedge funds. As always there is a large number of overvalued companies out there with aggressive accounting or other obvious weaknesses. Some examples would include IVN, PALM, ELOS, WBS, and LAMR. LAMR treated me badly the past 12 months after bottoming at a little over 5. Fortunately I closed most of the position on the way down at nice profits. Hope those give you food for thought. We do publish a weekly piece on Green Faucet that always has 13 LONGS and 13 SHORTS. Investors (H)Edge is the title. A subscription product. Thanks for your comment.

david


On Nov 10 01:14 PM absolute return guy wrote:

> Market is proving as always that I don't have a clue. I will check
> these 4 stocks out. Any thoughts on some weak stocks as well for
> short or puts? I like to be covered on both sides so while I appreciate
> the 4 long ideas it would be nice to get some indication of what
> you consider a weak stock as well.
>
> Thanks for the column.

2009 Nov 10 08:08 PM

[absolute return guy]

Nice call on NAFC.

2009 Nov 13 09:40 AM

[The Lonely Value Investor]

NAFC is an interesting idea, but IDCC is better.

2009 Nov 15 10:33 PM