Sample Issue and Hotline: See For Yourself

USIR Hotline Update

For Monday, July 12, 2010 before the market opening

 

 

A Real Rally or a Teaser?

 

The coming week or two may answer that question. For now, we’re still dubious about last week’s mini-rally—though some readers may not be able to resist doing a little nibbling with cash reserves. We ourselves prefer to wait for stronger confirmation than four days of up-prices on meager volume.

 

The market averages rose 5% or so in the four days since July Fourth, after two weeks of sharply declining prices that climaxed the final days of June. This week, second quarter earnings reports will begin to flow in earnest. S&P 500 earnings are expected to jump 27% from a year ago—with similar 20%-plus gains in the third and fourth quarters. That’s great news, since earnings drive stock prices. And it could happen. Companies that slimmed-down during the recession could indeed large percentage gains in an improving economic setting.

 

Yet last week’s mini-rally, liked the abortive one-day attempts in late June, came on very light trading volume, both on the NYSE and Nasdaq market. We’ve seen northing close to the sort of robust buying that it takes to ignite and sustain real rallies. It will take a lot more buying activity than last week’s ho-hum trading to regain the market’s late April highs, not to mention the far-distant peaks of Sept. 2008 (before the Lehman collapse) and Oct. 2007.

 

The hesitant buying activity is understandable. It stems from concerns about joblessness, real estate recovery, and huge debt loads of governments foreign and domestic. A really strong set of earnings reports during the coming weeks won’t quell those worries, but could muffle them enough to start lifting share prices back toward April’s levels of S&P 1200, Nasdaq 2500 and Dow 11200. They closed last week, respectively, at 1078, 2196 and 10198, up about 5%.

 

Preparing for our July 16 issue later this week, we’ve screened over 200 would-be new recommendations—to see if the price declines of late June have opened some windows of fresh opportunity. We’ve also been reviewing our current Recommended List, which includes the 17 stocks that were stopped out of our model portfolios during the heavy selling that followed its publication in our last issue. (The stop-outs and resulting portfolio make-ups were reported in tables in last week’s hotline which are still available on our website.)

 

Updating Our Portfolio Stocks

 

Four stocks survived the wave of stop-outs in late June—Broadcom (BRCM), Novo-Nordisk (NVO), VeriFone Systems (PAY) and Urban Outfitters (URBN), all of them except URBN rising nicely last week.

 

Among the 17 stopped out in late June, seven remain or have rebounded to, or above, their 50-day moving averages. These are: Apple Inc (AAPL), Cognizant Technology Solutions (CTSH), Cirrus Logic (CRUS), Deckers Outdoor (DECK), Novellus Systems (NVLS), SanDisk Corp (SNDK) and Skechers USA (SKX).

 

Ten others fell below their 50-day averages and remain there-although all rose in price in last week’s mini-rally, most by more than market’s 5% advance. They are: Coach Inc (COH), DirecTV (DTV), DG FastChannel (DGIT), Express Scripts (ESRX), Ford Motor (F), Hewlett-Packard (HPQ), Jo-Ann Stores (JAS), OSI Systems (OSIS), Plantronics (PLT) and True Religion Apparel (TRLG). 

 

If you do any nibbling at this point, these ten stocks, on a technical basis, are less appealing than the others. Yet on their fundamentals, all of them do offer 3- to 5-year earnings growth prospects averaging in the 18% to 20% range. Few if any analysts, including ourselves, have backed down from their bullish growth estimates. These stocks, having fallen farther than others, could turn out to have greater upside potential going forward.

 

This week’s July 16 issue will suggest new stocks, review on-going recommendations and discuss our next portfolio moves.