What the Market Wants: Investors Remain Patient but Caution is Still in Order

The market ended last week up about 1% with Large-cap Growth leading the way, up 1.15%.  Worst was the cap/style that has led for over a year, Small-cap Growth, up only 0.08%.  Clearly, traders were cautious, as value did better than growth in Mid- and Small-caps.  Large-cap leading is another sign of caution. 

If you need further convincing of the cautious nature of investors, Flight-to-Safety sectors crowded the top of the board with Utilities third, Healthcare fourth, and Consumer Non-Cyclicals fifth.  Somewhat surprisingly, Basic Materials and Industrials were the leaders, with Basic Materials up a solid 2.2%.  Industrial commodity prices and gold rose along with Treasuries, which indicated a more optimistic picture of global manufacturing strength than the political turbulence might warrant.   Oil prices fell as did corn.  Weak sectors included Energy, Financials and Telecom.

Market Stats

Our 30-day forward-looking SectorCast favors Financials despite last week’s poor performance. Consumer non-Cyclicals and Healthcare are forecasted to be the second and third best performers.  Today, Consumer non-Cyclicals was second and Healthcare was third supporting the outlook for the next 30 days.  More Flight-to-Safety is expected.  Financials improved from last week, but I was still down 0.10% for the day. The SectorCast still has a very poor outlook for Technology, Energy and Consumer Cyclicals; however, Apple’s (AAPL) good earnings report, Technology looked good today as the runner-up sector, gaining 0.45%.  AAPL was quite weak initially in the aftermarket giving back more than its entire gain, before climbing back to only 0.34% off its close. Perhaps today was a one day aberration for Technology.

All in all, earnings reports were a bit better-than-expected last week, although top line growth was non-existent for far too many of those reporting.  Today’s Industrial Production report was considerably better than expected (+0.6% vs. an expected +0.2%).  Pending Home Sales were weaker-than-expected.  We should point out that last week was difficult to judge due to data issues related to the government’s three week shutdown.  Construction Spending was a bit better-than-expected as was Durable Goods.  Michigan Sentiment was a tad lower at 73.2, compared to 75.2 last month.  On the whole, economic figures continue to demonstrate very slow growth. 

This week we will get Retail Sales tomorrow, which may be tainted by the Washington fiasco; but if it’s positive, it would be a welcome sign to risk-on investors.  ADP Employment may help but it also could be tainted. Personal Income, PMI and Construction Spending round out this week’s reports on Thursday and Friday.  If they are better-than-expected that would be good news.  If they are weak, we will not know whether to blame the shutdown or not.  Another full week of company reports should be the most important data for investors. 

Caution continues to reign.

3 Stock Ideas for this Market

I selected the following stocks from a custom search looking undervalued growth stocks with recent upward analyst revisions in MyStockFinder (*all data below from Yahoo! Finance and Reuters):

Apple Inc. (AAPL) –Technology

  • Trading for 13x current earnings and 12x forward earnings estimates
  • Positive earnings surprise in last three quarters
  • Beat on revenue, earnings, and iPhone units, but missed slightly on iPad units in Q3
  • Analysts have revised earnings estimates up for next quarter in last 30 days
  • 0.40% projected EPS growth for current quarter, 10% next year, 15% over the next 5 years

Hi-Crush Partners LP (HCLP)—Energy

  • Trading for 33x current earnings and 11x forward earnings estimates
  • Analysts revised EPS estimates up in last 30 days for the current quarter
  • 100% projected EPS growth for the current quarter, 41% this year, 33% over the next 5 years

Altisource Residential Corporation (RESI)—Financials

  • Trading for 40x current earnings and 13X forward earnings
  • Analysts revised EPS estimates up in last 7 days
  • 133% projected EPS growth next year, 20% over the next 5-years
What the Market Wants
david / Tag: AAPL, HCLP, RESI /