Will the Bounce Last? Plus Five Stock Suggestions

 |  Includes: EBAY, ETN, PCLN, TRW, WFM
by: Steve Reitmeister
Today’s strong bounce above Dow 11,000 is not a surprise when you consider the ingredients:
  • Another country cleanup job in Europe
  • Jobless Claims report under 450K (3 of the last 4 in that camp)
  • Leading Economic Indicators at impressive levels for another month
  • Philadelphia Fed Survey reading of 22.5 crushing the expectations of only 5.6
Now the question is, does this bounce have legs?
Yes, if economic readings keep coming in like today. And yes, if corporate earnings keep beating expectations. (Meaning the quality 1-2 punch that got us to Dow 11,000 in the first place).
Unfortunately the answer is "No," if a larger European country catches the Greek/Irish flu. And no, if QE2 doesn’t stave off deflation. And no, if the 2nd round of bank stress tests are being done because our nation’s banks are in trouble (again).
The above dichotomy is exactly the problem we are facing as investors. Everything looks great as long as nothing blows up. Not the easiest environment in which to construct a portfolio.
The key is to not to be 100% bullish or 100% bearish as those extreme postures can lead to some extremely bad outcomes. Be a bit more nimble in your strategy and realize that what you believe will happen … may very well not.
Meaning that economics is a soft science. Meaning it’s not exact. Meaning you should stop pretending you know what will happen (cuz you don’t. Nor do I. Nor do Cramer, Buffett, Bernanke etc).
Take 5
This is where I share five of my favorite stocks that all have a coveted Zacks Rank of 1 (Strong Buys). (For more ideas about investing in these tricky times, see Portfolio Insurance for Bullish Investors.)
1) Eaton (NYSE:ETN): This industrial player is hitting on all cylinders. No wonder why Goldman Sachs recently added them to their coveted Conviction Buy List with price target of $117. And no wonder it broke out to new highs today.
2) eBay (NASDAQ:EBAY): The past couple years eBay lost that special mojo that made them an investor darling for so long. Gladly this past quarter’s 13% earnings surprise has analysts liking what they see leading to a nice jump in estimates going forward. If this indeed is the start of a new generation of growth for the company, then a lot more upside to come.
3) Priceline (NASDAQ:PCLN): This stock used to be very popular amongst the short sellers. But with the stock up nearly 100% this year, many have cried “Uncle” and finally moved on. Even now the shares are still attractive on PEG basis.
4) TRW Automotive (NYSE:TRW): The continued success of Ford and rebirth of GM has more investors noticing the positive growth trends in the auto group. And certainly they are noticing TRW given an average 92% earnings surprise the past 4 quarters.
5) Whole Foods (WFMI): The Great Recession was a scary time for a place that used to be called “Whole Paycheck” given their shockingly high prices. Since then they have fine tuned their cost structure to provide more value to customers. The results are a slew of positive earnings surprises that is winning back investors as well.

Disclosure: I own shares of ETN and PCLN