After two weeks of predicting stocks, we are 11/14 and although last week was nothing to brag about, my picks are still trading with gains. Last week I predicted that the market would finish either flat or with slight movement and for the most part I was correct. However, I believe that this week (December 12-16) will provide large gains, potentially 300 points on the Dow Jones. The summit wasn't as affective as we wanted, yet it should provide some stability and allow U.S. markets to trade on fundamentals rather than Europe's financial crisis. Therefore, I will choose stocks this week that ended last week with momentum that I believe have the potential to post large gains if the market trends higher.
During the last 4 months banking stocks have been reluctant to rise when the market trends higher but quick to fall with any negative news from Europe. I believe that people are so fearful of another recession similar to 2008 that investors have chosen to avoid banking stocks as a whole during Europe's financial crisis. And although Europe still has problems it did make strides in the right direction during the summit, and did establish that we wouldn't be seeing another Lehman Brothers.
Therefore, I expect for the markets to trade on fundamentals during this week and for Citigroup (C) and Bank of America (BAC), the two most undervalued banking stocks by book value per share, to post large gains. I expect for this week to be the start of a new rally among banking stocks that includes these two stocks regaining some of its losses, since we should enjoy a quite period from Europe. There are many investors watching these two stocks who are just waiting for a good opportunity to capitalize on the value that's present. And I expect that a domino effect will occur this week and lead to large gains among these two stocks, and others alike.
I was expecting a much larger reaction from the news of Ford's (F) dividend than what was returned in the stock's gains. However, the company did announce the yield during a sell-off within the market which pushed the stock lower. The company's made substantial improvements over the last few months including incredible monthly sales in November, which I believe will contribute to the stock's large gains over the next couple weeks. The auto industry is very similar to the banking industry, and we as investors associate recessions with the auto industry since the largest of companies performed so dreadful during the recession, which is still very fresh on the mind's of investors. In my opinion, this week will be a time of reflection and we will look back on the fundamental progress of the last four months that's been so blindly ignored. And since Ford is definitely one of the more undervalued stocks that's shown fundamental improvements, it will post large gains during the next week.
Diamond Foods (DMND) had fallen by more than 60% over the last three months before posting a gain of 52% on Friday. The stock had fallen so abruptly after questions surrounding its accounting practices and its likelihood of purchasing Pringles became unlikely. However, its large gains were a result of these issues being put to rest after an article from Reuters silenced the questions and put to rest the unlikelihood of the company purchasing Pringles. I believe the news is huge and the potential gains are even larger. The stock is currently trading 50% lower from its price before the rumors took place and from what I can tell, the rumors were the only catalyst pushing the stock lower. And now that the future appears bright, I believe the stock could post very large gains in the coming days. Before the downtrend began to occur the stock had been trading in a steep uptrend during the previous five years -- and I believe the trend will continue -- and that this would make a great short and long-term investment at its current price.
I have been bullish on Alcatel-Lucent (ALU) ever since the stock fell when the company lowered its guidance in Europe as a precaution. The company has improved its margins and earnings by a drastic measure and is well positioned to capitalize on some of the largest underdeveloped markets in the world. Yet, its stock's declined by nearly 70% over the last six months and I believe it will break through its price range and trade near $2 during this week. The stock posted a gain of nearly 10% on Friday after an upgrade on the stock was initiated and because of its reaction I believe it's likely that its gains will continue. This is a stock that I would most definitely watch over the next few days because it has the ability to post large gains in a short period of time.
A $100 price is a significant milestone for a stock, and I believe that both Caterpillar (CAT) and McDonald's (MCD) will surpass the $100 milestone during this week. The fundamental growth of both companies is remarkable and neither company is showing any signs of slowing growth. McDonald's has trended higher throughout the last six months despite turmoil in Europe, with a 20% gain. And CAT which initially dropped by nearly 40% during the sell-off within the market has been on a consistent uptrend since October 3 with a gain of 35%, and is now trading even during the last six months.
Both stocks are trading with momentum and are very close to $100, and I believe that if either of the two stocks can surpass this level that both will trend high above the level. And since I'm making my predictions based off the assumption that stocks will trade off fundamentals during this week I believe the chances for both stocks to post very large gains is highly likely.