Equities Are The Best Game In Town

Includes: APO, BX, CLMT, KKR
by: David Brown

After a long weekend, the market got a decent start to the new week from favorable European economic reports this morning and our own political "calm before the storm." Last week was frankly more upbeat than many expected as the market continued its advance to new highs, albeit slowly. And it was a quiet one ahead of the President's Day weekend with a less partisan State of the Union speech from the President. That was followed by less haggling among congressmen than of late. The economic stats were a little better than expected, with a very strong Michigan Sentiment reading following a surprisingly low Initial Jobless Claims.

Industrial Production wasn't as good as hoped, and Retail Sales were flat. This week brings a lot of housing data without great expectations; and the inflationary data is expected to be benign. The Philadelphia Fed Survey on Friday is expected to be up sharply. So what do we have to worry about?

Well, sequestration is still on the table and could go down to a repeat of the Fiscal Cliff at the New Year. Most think it will be partially resolved (with some of it kicked down the road) without too much economic disturbance. But today's market refused to be cowered by mere political bickering, and instead, focused on the better-than-expected fourth quarter earnings announcements, large deposits of corporate cash, and possible M&As to rise around one half percent for the day across major indices. Not bad compared to the small, plodding increases of the past few weeks.

Equities continue to be the best game in town. Major numbers of individual shareholders are moving away from bonds to at least equity funds and ETFs, if not out rightly into equities. The favored sectors seem to be Healthcare, Finance, Technology, and Consumer Non-Cyclical, while Energy, Basic Materials, Telecomm and Utilities remain near the bottom. Pockets of under-valuation continue to be available to most sectors, and these are highly sought and continue to do well. With attractive valuations out there, and corporate and private equity cash over flowing, we are reiterating our earlier recommendation on leaders in the acquisition field.

Here are the Market Stats

4 Stock Ideas For This Market

On December 31, 2012, we announced 4 bonus stocks for the 2013 Baker's Dozen (our top stocks for the calendar year) -- stocks that didn't qualify for the Baker's Dozen UIT because they were partnerships rather than corporations. These four stocks have gained an average of +18.22% for the first 6 weeks of 2013 (as of 2/15/13 market close)! These figures, by the way, do not include dividends, and all four stocks have healthy dividend yields.

The Blackstone Group LP (NYSE:BX), +20.46% YTD

  • Trading at 46x current earnings and 7x forward earnings
  • Analysts covering stock have overwhelmingly revised their estimates upward
  • 2013 projected EPS growth rate of 24%; 14% current quarter, 180% next quarter
  • 8.7% forward dividend yield

Apollo Global Management LLC (NYSE:APO), +24.93% YTD

  • Trading for 11x current earnings and 7.5x forward earnings
  • Analysts have consistently raised long-term estimates
  • 17% 5-year projected EPS Growth
  • 18.9% forward dividend yield

Kohlberg Kravis Roberts & Co. (NYSE:KKR), +14.77% YTD

  • Trading for 8x current earnings and 7.6x forward earnings
  • 5-year projected EPS growth rate is 44.7%
  • 15.5% forward dividend yield

Calumet Specialty Products Partners LP (NASDAQ:CLMT), +12.72% YTD

  • Trading for 10.7x current earnings and 11.9x forward earnings
  • Most analysts covering the stock have recently revised earnings estimates upward
  • 17% 2013 projected EPS growth rate; 16% 5-year
  • 7.2% forward dividend yield

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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