Here we go again.
Did the last two weeks remind you of anything? It reminded me of the entire year of 2011. It seems we only got a one quarter reprieve from high volatility accentuated by abrupt daily swings based on macro-economic data. Just as I stated for most of last year, use this weakness in the market as a buying opportunity. I have selected five companies reporting earning next week I believe are poised to move higher. With the recent sell off, these companies are a bargain. When they report positive earnings results next week they will be rewarded rather than sold off.
Current Market Backdrop
European sovereign debt fears and disappointing U.S. Data pushed the S&P 500 down 2.0% for the week. This was the largest weekly decline for 2012. Spanish borrowing from the European Central Bank drove the markets lower Friday despite the better than expected earnings results out of Alcoa (AA), Google (GOOG), JP Morgan Chase (JPM) and Wells Fargo (WFC) who all report this week. Borrowing from the European Central Bank by Spanish banks jumped significantly from February to March. That news caused its 10 year yield to climb back above 6.00%. U.S. Economic data frustrated the markets as well with claims data and Michigan Sentiment falling short of estimates. Moreover, China's PMI weighed on the market coming in at 8.1, under the expected 8.4 analysts had predicted.
The funny thing is, it was looked at as a positive by Asian markets based on the fact this would prompt additional Chinese monetary easing. What's more, we had the best first quarter in 14 years. A period of profit taking and rotation at the beginning of the second quarter seems completely rational and healthy for a bull market. Could it be that simple? I say yes. I think next week will be a turnaround story for the markets led by better than expected results from the following five companies. Please review the summary information table below followed by a brief review of each stock.
Bank of America Corporation (BAC)
BAC was down almost 6% today. The stock is trading down 36% from its 52 week high and approximately 15% from its recent high. The company has many fundamental positives. BAC has a forward P/E ratio of 8.19 and an EPS growth rate of 53.62% for next year. BAC has a price to book ratio of 0.40. The stock has pulled back to its 50 day sma. I see this as an excellent buying opportunity. Both JP Morgan and Wells Fargo reported positive earnings today but were sold off due to macro-economic issues. If BAC and other major companies best the streets estimates next week, investor's attentions will turn to fundamentals and earnings results.
Citigroup, Inc. (C)
C is down almost 4% today. The stock is trading down 26% from its 52 week high and approximately 14% from its recent high. The company has many fundamental positives. C has a forward P/E ratio of 7.11 and an EPS growth rate of 15.48% for next year. C has a price to book ratio of 0.55. The stock has pulled back to just below its 50 day sma. I see this as an excellent entry point to start a position.
General Electric Company (GE)
GE is down slightly over 2% today. The stock is 10% off its 52 week high and approximately 8% from its recent high. The company has many fundamental positives. GE has a forward P/E ratio of 10.73 and an EPS growth rate of 14.29% for next year. GE has a price to book ratio of 1.71. The stock has pulled back to just below its 50 day sma. GE pays an attractive dividend of 3.6% as well. I see this as an excellent entry point to start a position.
Halliburton Company (HAL)
HAL is down 2.3% today. The stock is 43% off its 52 week high and approximately 21% from its recent high. The company has many fundamental positives. HAL has a forward P/E ratio of 7.38 and an EPS growth rate of 16.14% for next year. HAL has a price to book ratio of 2.26. The stock has been trading sideways since October of last year. Based on this as a long period of accumulation, HAL has significant upside if reports positive results. I like the stock here.
Morgan Stanley (MS)
MS is down over 5% today. The stock is 36% off its 52 week high and approximately 18% from its recent high. The company has many fundamental positives. MS has a forward P/E ratio of 7.45 and an EPS growth rate of 22.11% for next year. MS has a price to book ratio of 0.54. The stock has been in an uptrend since October. Currently, the stock is resting at the bottom of its current trend channel which is extremely positive.
I believe the market has handed us a great opportunity to get in cheap on the above stocks. The market is currently focused on macro-economic events rather than company fundamentals. This is demonstrated by the selloff of Alcoa today just after reporting a great quarter and giving positive guidance. Nevertheless, the earnings expectations bar has been set extremely low for these stocks. Once the earnings beat start adding up next week the market will not be able to ignore the results. Use these sell offs to pick up shares in your favorite stocks.
Use this information as a starting point for your own due diligence and research methods before determining whether or not to buy or sell a security. If you choose to start a position in any stock, I suggest layering in a quarter at a time on a weekly basis to reduce risk and setting a 5% trailing stop loss order to minimize losses.