Michael Michaud's  Instablog

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What do you do when you buy a new house or condo? Buy furniture, of course. Suddenly, that old sectional with the dog hair stuck to the pillows isn't looking so hot.

Zacks Investment Research reports Haverty Furniture Companies, Inc. (HVT) is looking to cash in on the housing recovery. This Zacks Rank #1 (Strong Buy) is expected to grow earnings by 63% in 2013.

Havertys has seen it all. The company was founded in 1885 in Atlanta and used to make deliveries in horse and buggy. It now has showrooms in 16 Southern and Midwest states. Havertys went public in 1929 during dark economic times, but it has survived each of the big economic shocks.

The impact of the recent housing bust is obvious in Havertys multi-year earnings history. Earnings plunged 88.7% in 2007 to just 8 cents before the rest of the country went into recession and took Haverty's even lower.

The company didn't make money in either 2008 or 2009. Even 2010 and 2011 were still a struggle. But in 2012, the turnaround in the housing market, and the consumer, began to take hold. Havertys made 67 cents that year and it has seen rising earnings ever since.

As Housing Improves, So Does Havertys Business

On May 1, Havertys reported its first quarter results which easily beat the Zacks Consensus by 33%. Consumers were in the mood to shop to start the year as sales jumped 13.8% to $186.1 million while same store sales rose 11.5%.

It's not surprising that house sales and median home prices were rising throughout the quarter and Havertys business remained solid.

Gross profit margins were up 130 basis point to 53.5% from 52.2%.

Gains To Continue

The company also said that the total delivered sales to date for the second quarter were already running 14% higher over the same period a year ago.

It did try to temper expectations for the full year, though, saying that gross profit margins for the year, while improving, won't be as hot as the first quarter.

Housing Recovery Play Not a Secret

Investors have been all over the housing recovery stocks for the last year. The improvement in the housing market isn't exactly a secret anymore.

Shares of Havertys have soared since last summer to multi-year highs.

But, its valuation still isn't excessive. It's trading with a forward P/E of 22 and a price-to-book of just 2.0.

Consumer sentiment is finally reaching pre-recession levels which means that people believe the economy, and their own personal fortunes, are improving. The rise in stock and housing prices have a lot to do with that.

During times that you're feeling better about your financial situation, that's when you're likely to buy big ticket items like new furniture.

For investors looking for a way to play the housing recovery outside of the homebuilders, Havertys is one stock worth checking out.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in HVT over the next 72 hours.

Amgen to Set Up JV in China - By Zacks Investment Research

Amgen (AMGN) recently announced its intention to set up a joint venture (JV) in China with Zhejiang Beta Pharma Co., Ltd. The JV will focus on the commercialization of Amgen's colorectal cancer drug, Vectibix, in China.

While Zhejiang Beta Pharma will hold a 51% stake in the JV, Amgen-Beta Pharmaceuticals Co., the balance will be held by Amgen. The setting up of the JV depends on the satisfaction of closing conditions including approval from the concerned government authorities in China.

The JV should benefit from Zhejiang Beta Pharma's development capabilities as well as its strong oncology sales network in China.

This agreement is in line with Amgen's strategy of expanding its presence across the world. Earlier this year, Amgen had announced its intention to build a new manufacturing facility in the Tuas Biomedical Park area of Singapore. The company expects to manufacture both clinical as well as commercial products in this facility.

Meanwhile, earlier ithis month, Amgen reported encouraging data on Vectibix from the phase III head-to-head ASPECT study. The study compared Vectibix with Eli Lilly/Bristol-Myers Squibbs' (LLY) / (BMY) Erbitux as a monotherapy treatment of chemorefractory metastatic colorectal cancer (mCRC) in patients with wild-type KRAS tumors. Results showed that Vectibix was non-inferior to Erbitux for overall survival.

Adverse events included rash, diarrhea and hypomagnesemia. Amgen will present detailed results from this study at an upcoming meeting later this year.

Vectibix' label expansion would help boost product sales. Vectibix sales came in at $359 million in 2012, up 11.5%.

Amgen currently carries a Zacks Rank #3 (Hold). At present, Anika Therapeutics Inc. (ANIK) , a Zacks Rank #1 (Strong Buy) stock, looks well-positioned.

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Oil & Gas Stock Outlook by - By Zacks Investment Research

Crude Oil

Record-high U.S. crude stocks, a struggling European economy, worries about China's growth outlook, and the strong dollar have weakened oil prices to around mid-$90s a barrel. Partly offsetting this unfavorable view has been the improvement in domestic labor market conditions that points towards an improving economic growth backdrop.

The immediate outlook for oil, however, remains tepid given the commodity's fairly positive supply picture. In particular, while Saudi Arabia is likely to cut back on its production, global oil output is expected to get a boost from sustained strength in North America, Iraq, Angola, Brazil and Colombia. On the other hand, the growth in global liquids fuel demand will be relatively soft in the absence of a strong global recovery.

According to the Energy Information Administration (EIA), which provides official energy statistics from the U.S. Government, world crude consumption grew by an estimated 0.7 million barrel per day in 2012 to a record-high level of 89.0 million barrels per day.

The agency, in its most recent Short-Term Energy Outlook, said that it expects global oil demand growth by another 0.9 million barrels per day in 2013 and by a further 1.2 million barrels per day in 2014. Importantly, EIA's latest report assumes that world supply is likely to go up by 0.6 million barrels per day this year and by 1.8 million barrels per day in 2014.

In our view, crude oil prices in the second half of 2013 are likely to exhibit a sideways-to-bearish trend. With domestic demand relatively soft and the global economy still showing signs of weakness, the fact that supply will be outpacing consumption appears to be evident.

As long as sharp crude output growth from North America continues and the world demand is unable to keep up with that, we are likely to experience a pressure in the price of a barrel of oil. We assume that crude will trade in the $90-$95 per barrel range for the near future.

Natural Gas

Over the last few years, a quiet revolution has been reshaping the energy business in the U.S. The success of 'shale gas' -- natural gas trapped within dense sedimentary rock formations or shale formations -- has transformed domestic energy supply, with a potentially inexpensive and abundant new source of fuel for the world's largest energy consumer.

With the advent of hydraulic fracturing (or fracking) -- a method used to extract natural gas by blasting underground rock formations with a mixture of water, sand and chemicals - shale gas production is now booming in the U.S. Coupled with sophisticated horizontal drilling equipment that can drill and extract gas from shale formations, the new technology is being hailed as a breakthrough in U.S. energy supplies, playing a key role in boosting domestic natural gas reserves.

As a result, once faced with a looming deficit, natural gas is now available in abundance. In fact, natural gas inventories in underground storage hit an all-time high of 3.929 trillion cubic feet (Tcf) in 2012. The oversupply of natural gas pushed down prices to a 10-year low of $1.82 per million Btu (MMBtu) during late April 2012.

However, things have started to look up in recent times. This year, cold winter weather across most parts of the country boosted natural gas demand for space heating by residential/commercial consumers. This, coupled with flat production volumes, meant that the inventory overhang has now gone, thereby driving commodity prices to $4.38 per MMBtu - the highest since Sep 2011.

This, in turn, is expected to buoy natural gas producers. With the financial incentive to produce the commodity and the subsequent improvement in the companies' ability to generate positive earnings surprises, the stocks are likely to move higher.

But as the weather continues to turn milder and temperatures reach higher-than-normal levels, natural gas demand may suffer in the near future on account of above-average builds, thereby pulling down prices again.

Opportunities

Considering the turbulent market dynamics of the energy industry, we always advocate the relatively low-risk conglomerate business structures of the large-cap integrateds, with their fortress-like balance sheets, ample free cash flows even in a low oil price environment and growing dividends.

Our preferred name in this group remains Chevron Corp. ( CVX - Analyst Report ) . Its current oil and gas development project pipeline is among the best in the industry, boasting large, multiyear projects. Additionally, Chevron possesses one of the healthiest balance sheets among peers, which helps it to capitalize on investment opportunities with the option to make strategic acquisitions.

Within the domestic exploration and production (E&P) group, we like SM Energy Co. (SM) and EPL Oil & Gas Inc. (EPL). Supported by attractive oil and gas investments, balanced and diverse portfolio of proved reserves, together with development drilling opportunities, we expect the companies to sustain their production growth and profitability over the foreseeable future.

Further, we remain optimistic on the near-term prospects of Halliburton Co. ( HAL - Analyst Report ) . The oilfield services behemoth -- among the top three players in each of its product/service categories -- is enjoying strong demand for its services in international markets and expects the trend to continue in the coming years. Additionally, the company remains in excellent financial health and has recently announced a 39% increase in its quarterly dividend.

China's CNOOC Ltd. (CEO) is also a top pick. CNOOC remains well-placed to benefit from the country's growing appetite for energy and the turnaround in commodity prices. In particular, the company enjoys a monopoly on exploration activities in China 's very prospective offshore region in addition to having a growing presence in the country's natural gas and liquefied natural gas (LNG) infrastructure. The recent acquisition of Canadian energy producer Nexen Inc. will further improve CNOOC's growth profile by augmenting proven reserves by 30%, while helping it to vastly expand its holdings in Canada.

Finally, despite the uncertain natural gas fundamentals and the understandable reluctance on the investors' part to dip their feet into these stocks, we would advocate to opt for Canada 's biggest natural gas producer Encana Corp. (ECA) . Encana has one of the largest natural gas resource portfolios in North America, which provides a diverse/high quality inventory of reserves. We see a solid long-term future for the company as demand for natural gas soars, spurred by its cost effectiveness and abundant supply in North America.

Weaknesses

We are bearish on Italian energy company Eni SpA (E) . The integrated player -- with a large presence in Libya -- has seen its total production fluctuate in recent times, primarily due to operational disturbances at several fields in the North African nation.

Additionally, Eni's upstream portfolio carries greater political risk than its peers, since it has the highest exposure to the OPEC countries. The Rome-based company has also been mitigated by a weak macroeconomic scenario in Italy and Europe that is likely to affect its performances going forward.

Based upon the number of near-term challenges, we remain pessimistic on the near-term prospects of National Oilwell Varco Inc. (NOV) . With markets remaining competitive and pricing likely to be soft, the energy equipment maker's margins are expected to suffer in the next few quarters. Recent weakness in the North American onshore drilling environment has also been a negative. Furthermore, we expect shares to remain depressed until it increases its sub-par dividend yield.

Energy-focused engineering and construction firm McDermott International Inc. (MDR) is another company we would like to avoid for the time being, mainly due to its erratic earnings trend over the last few quarters and a disappointing outlook for 2013. Apart from having to deal with steeper operating costs, McDermott has already hinted that its top line will suffer next year due to uncertainty regarding the timing of big awards.

Near-term bookings also remain lumpy, as the current uncertain environment has hurt the economics of building new oil and gas infrastructure. Additionally, the transfer of the power generation and government operations has left McDermott with a less diversified business, thereby heightening its risk profile.

We are also skeptical on independent energy exploration firms Cabot Oil and Gas Corp. (COG) and Range Resources Corp. (RRC). Both of them have been among the better performing S&P stocks since the start of 2013, gaining 40% and 20% during the period, respectively. Most of the gains have been driven by their exposure to the high-return Marcellus Shale play, as well as their above-average production growth.

But given natural gas' volatile fundamentals and the duo's high exposure to the commodity, we do not believe that the stocks will be able to sustain the momentum in the near future. The companies' steep valuations as well as miniscule payouts also worry us.

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