Play it again Sam.
Did the second quarter 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 weakness in the market as a buying opportunity. The market is up mid-day Friday over 200 points. It seems the good news out of the eurozone has sparked a rally. Oil and other commodities were up as well as the dollar weakened. The euro spiked over 2% as the crowd of shorts in the currency began to cover on the news out of Germany.
I have selected five companies that may be poised to move higher next week. With the recent sell off, these companies could be bargains at this level if Europe comes through. I think next week will be a turnaround story for the markets led by better than expected results out of Europe.
In the following sections, we will perform a brief review of the fundamental and technical state of each company. We will take a closer look at the 5 stocks and discern if any upside potential exists based on sector, industry or company specific catalyst. The following table depicts summary statistics and Friday's performance for the stocks.
Alcoa, Inc. (AA)
Alcoa is trading well below its consensus estimates and its 52 week high. The company is trading 47% below its 52 week high and 34% below the analysts' consensus mean target price of $11.69 for the company. Alcoa was trading Friday for $8.70, up over 2% for the day.
Fundamentally, Alcoa has several positives. The company has a forward P/E of 9.05. Alcoa is trading for 13 times free cash flow and approximately two thirds of book value. EPS next year is expected to rise by 84.31%. Insider ownership is up 20% over the past six months and the company pays a dividend with a yield of 1.41% and has a PEG ratio of 1.85.
Alcoa beat earnings estimates last quarter and guided higher. The CEO came out last week and stated aluminum demand was strong and prices had risen 7% in 2012 so far. optionMONSTER says one investor is trying to bottom-fish Alcoa as the stock attempts to hold its lows from last year. optionMONSTER's tracking systems detected the purchase of more than 20,000 January 9 calls for $0.75 against open interest of 7,223 contracts. Furthermore, if the Europeans get their act together Alcoa could get an additional boost in profits from currency exchange rates as well. These are bullish indicators for the stock. I feel good about owning this stock into earnings on July 9th.
Freeport-McMoRan Copper & Gold Inc. (FCX)
Freeport is trading well below its consensus estimates and its 52 week high. The company is trading 40% below its 52 week high and 57% below the analysts' consensus mean target price of $52.85 for the company. Freeport was trading Friday for $33.82, up almost 5% for the day.
Fundamentally, Freeport has several positives. The company has a forward P/E of 6.33. Freeport is trading for 1.90 times book value. EPS next year is expected to rise by 26.87%. The company pays a dividend with a yield of 3.87% and has a net profit margin of 24.64%.
Freeport stands to gain as copper and gold spike higher on the news out of Europe. Gold was trading at $1601.10 up $50.70 or +3.27%. Copper was trading at $3.50 up 0.1715 or +5.16%. I like the stock here.
Newmont Mining Corp. (NEM)
Newmont is trading well below its consensus estimates and its 52 week high. The company is trading 32% below its 52 week high and 38% below the analysts' consensus mean target price of $66.68 for the company. Newmont was trading Friday for $48.23, up over 2% for the day.
Fundamentally, Newmont has several positives. The company has a forward PE of 8.87. Newmont's current net profit margin is 10.61%. The company has a PEG ratio of .91. EPS is expected to grow by 49% over the next five years.
Newmont stands to gain significantly if gold prices continue to climb out of their slump. Newmont's stock price has recovered substantially in the past few weeks. The stock has broken above the 50 day sma which is positive. The stock is a buy at this level.
SandRidge Energy, Inc. (SD)
SandRidge is trading well below its consensus estimates and its 52 week high. The company is trading 46% below its 52 week high and 52% below the analysts' consensus mean target price of $10.09 for the company. SandRidge was trading Friday for $6.63, up nearly 4% for the day.
Fundamentally, SandRidge has several positives. The company has a forward PE of 20.61. SandRidge is trading for less than two times book value. EPS next year is expected to rise by 107%. The company's net profit margin is 16.75%. Quarter over quarter sales and EPS growth are up 22% and 27% respectively.
Oil prices spiked Friday on strong dollar news. Crude oil was up +8.52% or $6.62 to $84.31. Many pundits had oil dropping significantly below $80. If the eurozone fix holds, SandRidge and a slew of other energy companies stand to gain substantial capital appreciation.
The stock has been taken down in sympathy with Chesapeake Energy (CHK) due to a perceived connection between the two companies. The drop in oil prices hasn't helped either. SandRidge has great prospects for future growth. I see SandRidge as a buying opportunity at this level.
Tenet Healthcare Corp. (THC)
Tenet is trading well below its consensus estimates. The company is trading 19% below its 52 week high and 13% below the analysts' consensus mean target price of $5.98 for the company. Tenet was trading Friday for $5.30, up 1% for the day.
Fundamentally, Tenet has a few positives. The company has a forward P/E of 8.33 while the average for healthcare providers is 18.8 times earnings. EPS next year is expected to rise by 15%. The company is trading for under two times book value.
I included Tenet in this list because last week I put the stock in the penalty box based on the Supreme Court's pending ruling on Obama's Healthcare plan. The SCOTUS passed the act 5-4. This is good news for Tenet. Under the act they would potentially have many additional new patients who could actually pay for services. The stock is a buy here.
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. Nevertheless, the earnings expectations bar has been set extremely low for the coming season. Alcoa is set to report on July 9th. I expect them to beat estimates just as they did last time. Use any weakness in the market to pick up shares in your favorite commodity stocks now.
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.
Disclosure: I am long AA.