We are beginning to see our prediction take hold that this market would become a stock picker's market rather than a market moving in general terms. We continue to see new highs outpace new lows and dramatically so which leads us to go back to recommending investors seek out momentum and to pay close attention to those trades. Momentum trades are getting all of the attention here, with names like Sirius dominating the daily volume and seeming to grinding higher day after day. Currently the only across the board investing we are doing is within the oil and natural gas sector and everywhere else we are investing according to individual companies (and yes we have had some failures doing so with some unforeseen company announcements, so be aware that the risk is high these days using this strategy).
We have economic news out today, it is as follows (data set - consensus).
Existing Home Sales - 4.70M
Looking at Asian markets we see markets are mixed:
- All Ordinaries - up 0.28%
- Shanghai Composite - down 0.16%
- Nikkei 225 - up 0.22%
- NZSE 50 - down 0.34%
- Seoul Composite - down 0.78%
In Europe markets are slightly higher:
- CAC 40 - down 0.46%
- DAX - down 0.38%
- FTSE 100 - down 0.08%
- OSE - up 0.06%
Yesterday it was announced that Mel Karmazin's stock sale program in Sirius XM (SIRI) shares concluded and news continues to trickle out indicating that the company is well on their way to getting this deleveraging story really cranked up. The big surprise this year has been the company's ability to continue to add new customers and build free cash flow which will help better manage the debt and potentially allow the company to engage in stock buy-backs. We have followed this stock for some time and still get excited when we see it up $0.105, as it was yesterday, and although that was only a 3.70% move not long ago it would have been a 5% move and had many people talking. The volume has increased over the past few trading days and interest is high, which leads us to think that much of the earnings are probably baked into shares at this point so those who like to play earnings might want to take a second look before doing so to see if you arrive at the same conclusion as us.
In yesterday's trading session we saw shares in Mellanox Technologies (MLNX) get crushed after the company released their earnings report the night before. We were surprised to see shares get hit to the extent that they were as we felt the $20.16 (20.54%) move was a bit overdone. With shares closing at $77.99/share we think that this growth story offers value at these levels and there are a few analysts who believe the same. The shares were taken lower because of the company's fourth quarter outlook and its effect on full year guidance. Missing full year numbers by a couple of million and next quarter's consensus by a few million hardly justify a 20% drop. We would look to buy this one on the weakness, but there is no need to rush in. Let it settle down and begin accumulating a position via a few buys, not all at once.
One knows that there are tough times ahead when companies who beat earnings estimates and have a good report discuss the uncertain economic times ahead when looking at the upcoming quarter. It could be posturing, but with this becoming a trend over the past few quarters we think that executives really do not know what to expect from all of their customers moving forward. Lam Research (LRCX) is the latest company to report good earnings and issue cautious statements regarding future quarters. The company crushed the EPS number and beating the revenue numbers by a few million. Investors liked the results, pushing shares up $2.43 (7.24%) to close at $36.01/share. The guidance given by the company on the conference call does show that semiconductor equipment sales should decrease across the industry and this goes along with what Intel indicated with their spending plans. We know how frustrating it is to be an investor in these times, but we can only imagine what it is like to be an executive now with these swings in revenue quarter to quarter coupled with the need to meet Wall Street's numbers every three months.
BB&T (BBT) saw earnings grow healthily last quarter but still fell short of analysts' numbers. Shares were taken lower by $2.29 (7.10%) to close at $29.98/share on higher than normal volume of 16.7 million shares. This is one of the banks which we really like, and we can tell you that they are quickly becoming one of the top mortgage originators in the southeastern region here in the United States. We have previously discussed how the company is aggressively targeting markets and not only expanding by building new locations but also organically. The company is one of the few institutions still lending to qualified borrowers and this is leading to many individuals we know switching their banking relationship from other names here. This is one of the gems in the entire sector and when it comes to getting a mortgage in their region they have become one of the go to institutions. We have become one of their customers recently and although some work could be done on the website, the banking experience is second to none. Regardless of the miss we would recommend this as a buy for readers looking to allocate long-term capital.
Shares in Dean Foods (DF) rallied $0.98 (5.78%) to close at $17.94/share after the company filed the papers for an IPO of their WhiteWave unit, which they have previously discussed. This transaction is supposed to create value for shareholders by splitting up the slow growth business and that which is growing strongly. These days it is all about the multiples assigned to divisions, and we have seen a trend develop over the years of food companies breaking up to better allocate capital, drive earnings growth and create shareholder value by performing these break-ups.