What the Market Wants: Is The Market Too High?

Surprise!  The market roared ahead this morning with all three major domestic indices up at least 1.5%. The move was triggered by a weekend with little negative economic news domestically and globally.  Then this morning, an impressive increase in Consumer Confidence to 76.2, which was not only well above last month’s 68.1 and the projected 72.5 but also a 5-year high, provided investors something to cheer about. That was followed by a robust 10% increase in the Case Schiller HPI which resonated well with investors. 

These positive numbers following last Friday’s positive release on Durable Goods, New and Existing Home Sales and improved Initial Jobless Claims generated extreme market enthusiasm at today’s opening bell.  However, after an hour of strong positive trading, reality set-in and profit taking followed.  Some based their skepticism on continued interest rate concerns triggered by the release of Fed notes last week.  Market gains were trimmed to less than a 0.5% within an hour of the closing bell.  Then buyers re-entered the picture to move the markets closer to the opening levels, although the highs were not reached.  Nevertheless, today was a very positive start to the week with the Dow up more than 100 points (another new high), the S&P 500 up more than 0.5% percent and the Nasdaq up nearly 1% percent. 

So where to from here?  As we pointed out last week, market valuations are a bit above historical average valuations.  There continue to be numerous stocks with good growth opportunities at bargain prices.  The best sectors to target would seem to be Cyclicals, Energy and Basic Materials.  Technology is ok if analysts are revising EPS estimates upwards.  Healthcare is ok on the same basis.  Financials would seem to be at risk if interest rates begin to climb or are even predicted to climb later this year or even next year.  Avoid Utilities, Telecomm and Consumer Non-Cyclicals which seem fully priced.  Industrials are diverse and require significant individual company analysis.  Look for low to reasonable debt levels as well.

Here are the Market Stats.

4 Stock Ideas for this Market

I selected the following stocks from a GARP preset search in MyStockFinder:

JAZZ Pharmaceuticals (JAZZ) – Healthcare

  • Trading for 13.25x current earnings and 8.81x forward
  • Projected EPS growth: 39.4% current quarter, 21.7% next quarter
  • Nearly all covering analyst have revised EPS estimates upward in the last 30 days

Capital One Financial Corp (COF) – Financials

  • Trading for 11.59x current earnings and 9.34x forward earnings
  • Recent upward analyst revisions to EPS estimates
  • Projected EPS growth: 937% current quarter

Tesoro Corporation (TSO)—Energy

  • Trading for 11.24x current earnings and 9.19x forward earnings
  • Projected EPS growth: -43.2% current quarter, 9.8% next quarter
  • Recent upward analyst revisions to EPS estimates

Western Alliance Bancorporation (WAL) – Financials

  • Trading for 15.58x current earnings and 12.38x forward earnings
  • Projected EPS growth: 80% current quarter, 55.6% next quarter
What the Market Wants
david / Tag: JAZZ, COF, TSO, WAL /