The market got another boost yesterday, this time from old big blue (IBM). There is a heightened sense of anticipation in the markets during this period with multiple plays expected:
1) Fed's rate drop announcement, expected for Jan 30 or earlier. Market's giving a 50% chance for a 75 bp cut, I would stick with 25-50 bp only. Bernanke would not likely go ballistic on the rate cut considering oil is still in the high 90s (meaning inflation is not dead yet).
2) The government is expected to announce specific measures to contain the mortgage plunge and the slowing economy (possibly in the State of the Union address on Jan 28)
3) A slew of big financial plays, starting with Citigroup (C), will be announcing earnings starting Tuesday. I still bet on an upside for the big financial sector plays.
4) Steve Jobs speaks at the Macworld conference, with possible announcements on ultra-thin laptops or new service offerings leveraging its ipod/itunes legacy. I don't see much of an upside in this stock medium term, even if something spectacular is announced today...i mean apart from the customary blip in such case!
Meanwhile, here's a quick peek at some stocks across sectors - either value of take-over plays:
- Websense (WBSN) (at 17.19) - A leading provider of web security solutions. Trading at a 52-week low, near June 2004 levels. Steady positive upside on earnings estimates. Probably not a very cheap PE still, but its a good merger/take-over play - its hard to imagine this staying as a stand alone company for long.
- Cognizant (CTSH) (at 28.35) - Leading offshore service provider. Trading near 52-week lows, near Feb 2006 levels. Steady earnings surprises - only the subdued guidance in the last earnings call did the stock in. Attractive at PE of 28, with a historical profit CAGR of over 50%. Despite the dollar devaluation vis-a-vis the rupee and market slow down in some client sectors, a 30-35% CAGR should be achievable over the next 2 years.
- Amgen (AMGN) (at 47.9) - Biotech therapeutics play with a focus on cancer care. Trading at 52-week lows, with an attractive PE of 17. This is a large sustainable play, and it could very well trade in the 60s in a short period from now.
- VASCO Data Security (VDSI) (at 21.68) - Information security solution provider, focus on token-base user authentication. PE of 35 is not cheap; but trading off over 50% from its highs. Strong position in the market, i feel its a distinct take-over target considering what happened with RSA last year.
- Washington Mutual (WM) (at 14.32) - WaMu cannot be that cheap. At a PE of just 5.57, it is trading at a 10-year low! Despite its high mortgage exposure, this is a definite value pick. Could even be a take over target for 2008, with its attractive West Coast coverage (JP Morgan? Wachovia?).
- MBIA Inc. (MBI) (at 17.05) - Another one at a 10-year low, with a PE of 4. Credit insurers definitely will not have a smooth ride through 2008, but this one has been beaten up too hard, like many other financial plays. Could even see some private equity investment here.
As mentioned earlier, I am still bullish on many big-ticket financial plays which have been beaten up over the past 3-6 months, but I won't mention any of these here, to avoid sounding repetitive!
Happy trading through 2008, and through a volatile January!