Market Recap: The market was making a nice move today as Bernanke said enough to goose the market, and it was a sell the rumor/buy the news type move. Bernanke did not give us QE3 ... no one was shocked. At the same time, Bernanke did not not give us QE3, which continues to put a floor on the market. Additionally, we may see the market shifting its focus away from the Fed for the rest of the year and to Europe and the election. The prospects of Mitt Romney were also a boost today. Michigan Consumer Sentiment and Factory Orders also came out very solid today, which was another boost. As we head into long weekend, we may see a fairly strong rally coming soon.
Stocks To Trade
For an earnings trade, we like the looks of Dollar General. DG is expected to see EPS improve 0.12 or 25% as well as 10%+ in revenue. For us, these are two standards of great growth that we look for in earnings trades. It shows improving margins as well as the kind of growth that can really lead a stock higher. Only if, however, there is value. DG has nice value with a future PE just over 15 and PE just over 20. The stock is fairly priced at its current TTM EPS. If we see that increase by 25%, we should see at least a 4-5% increase in price. DG over the past two days has broken out of a short-term downward price channel and looks to have shown us a bottom at $48 that we would use for selling puts below it.
For longs, we like the looks of CERN and N. Cerner is showing some very strong potential for a breakout above $75 after putting in a nice bottom at $70. The company broke out of a downward wedge and has shown a lot of strength off the $70 line. We believe the stock should make a nice move higher from here if it can get over $75. Fundamentally, CERN is a great growth candidate, and we believe the company can make more moves. For options, we like N. The company had a great finish to the week, breaking out after forming a great bull flag. N is in a high growth mode and just released fantastic earnings. We believe this company will continue higher into its next report after showing a lot of strength on the $55 line, and we would use that line for selling puts.
For shorts, we like Qualcomm and Facebook. QCOM must not have gotten the message that the market broke out today. The stock continues to weaken and look weak right now. After a tremendous rise on the back of Apple (AAPL), QCOM may be one you would think to buy into the iPhone 5 release. We believe a lot of the Apple phone stuff is now priced into QCOM, and they did not get the boost from the Apple/Samsung verdict that many expected. This stock is showing a lot of toppiness, and looks like it is a good short on a break of 61.00. FB may be the worst stock on the market right now, according to recent action. While we do believe that the FB brand is powerful, the company has failed to translate that into equity success. Why is that? The company is already showing some slowing growth, has little economic moat, and has a stigma that will be hard to shake. We think the next November opening of shares will bring another group of sellers into the mix, and we do not see upside for awhile. We like the 20/21 bear call spread for Nov17 on them for a potential 33% gain.
We had a quiet day in the market as we sold two equity positions - short IBM (IBM) and long Netsuite for a 0.50% loss and 1.1% gain. We added the long in N as well as a long in Microsoft (MSFT). Further, we sold some weekly bull put spreads in Apple for next week's expiration.
We have the following positions:
In our Short-Term Equity Portfolio we are long Microsoft and NetSuite.
In our Earnings Alpha Portfolio, we are long Crocs (CROX), Discover Financial (DFS), Smith & Wesson (SWHC), Lennar (LEN), Ulta (ULTA), Francesca's (FRAN). We are short RedHat (RHT). We have a reverse iron condor in Abercrombie & Fitch (ANF).
In our Goldman Sachs Up/Down Paper Portfolio, we have no current positions.
Chart courtesy of finviz.com.