Some Distribution Creeps In
After a very healthy advance from the mid-November lows, we’re starting to see a little distribution creep into the market; the indexes are chopping around a bit, some stocks have gotten hit on earnings and growth stocks in general have been lagging—not poor performance, but not superb, either. Now, with all that said, we can’t say the action is abnormal; earnings season always brings a few hiccups and the market deserves a breather after a big run. But just consider it a heads-up—the long-awaited market pullback could be starting. We’re keeping our Market Monitor in the bullish camp, as the odds are that any weakness will give way to higher prices.
This week’s list reflects where the strength lie in this market—mostly economically sensitive stocks, along with a smattering of earnings winners. Our favorite of the week is Las Vegas Sands (LVS), which just popped on earnings and is showing great strength after a two-year rest period.
| Stock Name | Price | ||
|---|---|---|---|
| Robert Half (RHI) | 78.58 | ||
| The Manitowoc Company (MTW) | 0.00 | ||
| Marathon Petroleum Corporation (MPC) | 0.00 | ||
| Las Vegas Sands Corp. (LVS) | 0.00 | ||
| HollyFrontier Corporation (HFC) | 0.00 | ||
| Community Health Systems (CYH) | 0.00 | ||
| CommVault (CVLT) | 0.00 | ||
| Credit Suisse (CS) | 0.00 | ||
| Celgene (CELG) | 0.00 | ||
| Cameron (CAM) | 0.00 |
Robert Half (RHI)
Why the Strength
Robert Half is a worldwide leader in staffing services, and its stock remains super strong as investors are anticipating a major pickup in business. There are a couple of reasons for this. First, the U.S. job market continues its slow, steady improvement; while the 155,000 jobs created in December were par for the course, what was underreported was the upward revisions to October and November by a combined 120,000 jobs. That says nothing about Europe, which remains in the dumps ... and yet Robert Half’s revenues in Europe were positive in the fourth quarter, paving the way for a big improvement as the continent recovers. As for a business-specific catalyst, the Affordable Care Act is likely to significantly boost demand for Robert Half’s services; there are 130,000 businesses with 50 or fewer employees in the U.S., half of which don’t offer health insurance to their employees. Because the regulation cut-off point is 50 employees, many will look to remain under that level ... partly by using Robert Half’s staffing services (who will technically be part-time or contractors). Exactly how that plays out is anyone’s guess, but it’s a good bet business should accelerate, which, along with already-robust earnings growth, should keep big investors interested.
Technical Analysis
RHI looks like a lot of economically-sensitive stocks. It’s going straight up! The stock looked poor until its earnings report in mid-October, and once the market got going in mid-November, the stock really took off, rising from 26 to north of 35, aided by last week’s huge-volume, earnings-induced burst. If you want in, we suggest targeting a pullback of a point or two, especially if it coincides with a couple of down days in the market.
RHI Weekly Chart
RHI Daily Chart
The Manitowoc Company (MTW)
Why the Strength
When you first read about Manitowoc’s business, you’ll likely do a double-take; the firm is a leader in providing cranes for construction, as well as providing foodservice equipment for the restaurant industry ... two totally different industries. However, there’s some logic here; the crane business is as cyclical as any industry, either booming (when the global economy and construction picks up) or busting (when building drops off). But the foodservice business is much steadier and is seeing great margins; despite accounting for just one-third of revenues, it made up nearly half of operating earnings. And it’s the combination of the two that is attracting investors—based on last week’s fourth-quarter report, management sees more steady growth and margin expansion in the foodservice business, while the crane segment provides big potential upside. (Management guided toward a high single-digit revenue growth for cranes in 2013, but most believe that to be conservative.) All told, analysts see earnings increasing about 70% this year and more in 2014 as management squeezes more cost out of its structure and the crane segment picks up. There’s nothing revolutionary here, but if economically-sensitive stocks continue to do well, we see no reason why Manitowoc won’t participate.
Technical Analysis
MTW peaked at 51 in 2007, fell to 2 in 2009 (!), and rebounded to 21 by early 2011. Since then it’s been building a huge base, with a couple of major ups and downs (such as its crash back to 5 in the summer of 2011). Now, however, it appears the stock may be breaking free of its zig-zagging ways—MTW has been generally pushing higher since last summer, with its corrections modest since then. Last week was a great sign of strength, with the stock moving up a few percent on its heaviest weekly volume in a year. We think it’s buyable on a small pullback, but be sure to keep a stop near the 50-day line, currently near 16 and rising.
MTW Weekly Chart
MTW Daily Chart
Marathon Petroleum Corporation (MPC)
Why the Strength
The advent of cheap domestic crude has been a considerable boon for U.S. refineries like Marathon Petroleum. With rising global demand pushing the international price of crude higher, Marathon has been able to heavily pad its bottom line by refining cheaper domestic crude and selling the output on the international market. This international/domestic discrepancy helped lead Marathon to a turnaround in fourth-quarter profit as revenue jumped 7% year over year. Looking ahead, Marathon has a pair of catalysts that could push revenue even higher. Specifically, the company just completed its acquisition of BP Inc.’s Texas City refinery, which is expected to boost Marathon’s refining capacity by an estimated 34%. Meanwhile, if all of the pipeline owners agree, Marathon will begin operating the 633-mile Louisiana-to-Illinois Capline pipeline in September. As part of the deal, the company will also be the anchor shipper on Enbridge Inc.’s proposed Southern Access Extension, allowing Marathon to bring in more Bakken shale and Canadian crude to its Midwest refineries. Lastly, Marathon is clearly devoted to paying much of its success back to investors, with the company announcing a $2 billion share repurchase program and a fourth-quarter dividend of 35 cents per share.
Technical Analysis
MPC shares have been on fire for the past eight months. The stock ended the first half of 2012 on a sour note, tagging a low of 35, but shares have surged more than 120% since! Throughout this rally, MPC has enjoyed solid support from its 10-day, 25-day and 50-day moving averages. Following a period of consolidation in November and December, MPC spring-boarded higher off support near 60 to tag a fresh all-time high north of 75. Currently, MPC might be overbought, as the shares enjoyed a brisk post-earnings buying spree. Investors should view any pullbacks as buying opportunities, while setting a loose stop near 66, just in case.
MPC Weekly Chart
MPC Daily Chart
Las Vegas Sands Corp. (LVS)
Why the Strength
Despite having Las Vegas in its name, Las Vegas Sands actually gets more of its revenue from Macau, the only place on the Chinese mainland that has legal gambling. Las Vegas Sands, under the guidance of founder Sheldon Adelson, made the move to China early on with the opening of the Sands Macau in 2004. Since then, the company has opened the Venetian Macau (2007), the Four Seasons Hotel Macau (2008) and the Sands Cotai Central (2012). Las Vegas Sands also operates the Marina Bay Sands, which it opened in Singapore in 2010. The company’s quarterly report came out last Wednesday and results were very strong, led by a 48% rise in Macau revenue to just shy of $2 billion. The Sands Cotai Central is reported to be taking market share away from competing casinos, countering so-so results from the company’s Las Vegas operations. With another property under construction in Macau and its Bethlehem, Pennsylvania, casino said to be up for sale, the company is keeping the pedal down on its Chinese operations. The planned sale of its Asian shopping malls will, according to Adelson, bring in as much as $10 billion. All of this points to a healthy load of cash, some of which may find its way into the company’s dividend program, which will yield 2.7%.
Technical Analysis
LVS put in an unusually long base from November 2010 through the end of 2011. A substantial three-month rally that pushed the stock from 38 to 58 in early 2012 gave way to a four-month dip to 33 as worries about the Chinese economy weighed on all Macau players. But LVS fought back, rebased under resistance at 45, then caught an updraft in early January. The good earnings news has put more heat into the stock, and it’s closing in on its all-time high of 58 from last April. LVS looks like a good buy on a dip of a point or so.
LVS Weekly Chart
LVS Daily Chart
HollyFrontier Corporation (HFC)
Why the Strength
In February 2011, When Holly Corp. announced that it would merge with Frontier Oil, investors were very interested. Holly Corp. brought its refining operations in New Mexico, Utah and Oklahoma, and Frontier Oil brought its refining and distribution assets in Wyoming and Kansas. The combined company’s concentration on high-value light petroleum products like gasoline, diesel fuel and jet fuel has made its proximity to the low-cost output from the Bakken and Barnett shale basins a big plus. The combined company is also enjoying lower costs of operations. The company will be reporting Q4 and annual results on February 26, and analysts are expecting good news, as the strengthening U.S. economy has lifted fuel consumption and the company’s expenditures on maintenance have lifted refinery performance. HollyFrontier is buying back shares and is sitting on a substantial pile of cash, both of which will benefit investors. The company’s 1.5% forward annual dividend yield is likely to be higher, as HollyFrontier has a history of returning cash to investors via special dividends in addition to its scheduled payouts.
Technical Analysis
HFC has been on a roll since it completed its last major correction in May 2012 at 28. Since that correction low, the stock has surged ahead, taking out its previous highs in late July. HFC built a new base beginning in late November with an eight-week consolidation that centered on 45. The new rally began on January 22 with the stock at 44, right on its 50-day moving average. HFC is showing no sign of slowing down even with its quarterly results due out in three weeks. If you want in, you may have to take a small position (half of your usual dollar amount) or be patient and wait for a pullback toward 52.
HFC Weekly Chart
HFC Daily Chart
Community Health Systems (CYH)
Why the Strength
The healthcare sector is hot right now, and it’s not just because we are in the midst of a particularly nasty flu season; it’s because companies like Community Health Systems, which operates 131 hospitals totaling some 19,600 beds across 29 states, stand to reap huge benefits from the Affordable Care Act. Prior to ACA, hospital operators were saddled with huge debts due to un- and underinsured patients. This burden is expected to lessen considerably, with ACA significantly expanding the pool of paying patients. What’s more, Community Health isn’t as large as some of its competitors, meaning that the company has considerably more room for growth as the pool of paying patients rapidly expands. Even more impressive is that Community Health was already growing steadily before ACA was ruled constitutional. Specifically, the hospital operator has averaged year-over-year revenue growth of 8% during the past four quarters, with earnings growth coming it at roughly 9% year-over-year for the same period. Community Health is already catching the eyes of many in the analyst community, with Deutsche Bank lifting its price target on the stock last week.
Technical Analysis
CYH saw steady growth in 2012, with shares adding roughly 78% despite several periods of volatility brought on by the political climate. That volatility has all but evaporated since the November elections, with CYH climbing steadily along support at its 10-day and 25-day moving averages. This uptrend has accelerated in 2013, with CYH jumping nearly 30% year-to-date. The stock’s uptrend has slowed in recent weeks, however, as resistance at 40 and an earnings report on February 21 have created headwinds. If you want in, we think you can nibble on a drop to 37 or below.
CYH Weekly Chart
CYH Daily Chart
CommVault (CVLT)
Why the Strength
Data management specialist CommVault Systems extended its track record of strong revenue and earnings growth recently, posting record figures during its third-quarter earnings report. Specifically, the company banked a 44% increase in earnings and a 24% spike in revenue during the quarter, extending CommVault’s eight-year streak of 20% average revenue growth. At the forefront of the company’s offerings is its modular Simpana software, which offers data protection, data migration, snapshot management, compliance, and enterprise-wide search. Currently, CommVault derives 61% of its revenue from U.S. business, with 8% of that coming from the U.S. government. Despite consistent economic turmoil overseas, the company was still able to press forward with its plan to quickly address customers’ changing data and information management needs. For instance, CEO Robert Hammer recently told investors that the company’s 28% year-over-year license revenue growth in the third-quarter was due to CommVault’s ability to meet the needs of large commercial and government enterprise customers. Looking ahead, Hammer foresees an accelerated investment in sales capacity, which should help provide stability for CommVault amid steady economic growth in the U.S. and Asian markets, and continued turmoil in Europe.
Technical Analysis
Technically speaking, CVLT has rallied more than 90% since bottoming out near 38 in July 2012. The uptrend had proceeded on relatively low volume until recently, with investors content to allow shares to drift higher along their 25-day and 50-day moving averages. However, interest picked up in late October after CVLT’s 50-day and 200-day trendlines completed a bullish cross. The shares rocketed above former resistance at 60 to test the 70 region. Following a period of consolidation into its 50-day trendline, the stock once again surged higher on strong volume, and now stands poised to challenge fresh all-time highs above 80. The recent buying spree has CVLT a bit overbought, so take smaller bites, or wait for a further pullback. A stop loss on a trade below 70 is advised.
CVLT Weekly Chart
CVLT Daily Chart
Credit Suisse (CS)
Why the Strength
Credit Suisse made its Cabot Top Ten Trader debut last week, and it’s back for a second look today. Credit Suisse has shared in the dismal performance of European financial institutions in the last few years, but it’s outperforming most of them as the recovery takes hold. The company is having its strongest performance in asset management, as improving economic conditions and attractive valuations are bringing lots of money off the sidelines and into equities. The company is also just finishing the first part of a cost-cutting program that is expected to improve margins. The attractive outlook, coming after declines in revenue in three of the past four years, is doing wonders for Credit Suisse’s stock. Two upgrades from analysts in January also illustrate the positive outlook and make the company more attractive to institutional investors, of which there are only 123 at present. Credit Suisse and its 2.6% forward annual dividend yield and forward P/E ratio of 10 look like a good conservative play on the rebound of Europe.
Technical Analysis
CS pulled out of a multi-year decline in August, finding support at 16. A few weeks later, the stock was beginning a new consolidation at 23. Fifteen weeks later, CS got moving again as the calendar turned, lifting the stock to 30 last Friday. Today’s pullback to below 29 presents a good buying opportunity for a stock with a strong macroeconomic story. The fast-rising 25-day moving average is just below 28, and should provide fresh impetus when it intersects the stock. You can buy anywhere under 29, with a stop at 25.
CS Weekly Chart
CS Daily Chart
Celgene (CELG)
Why the Strength
Celgene is a biopharma with at least three blockbuster drugs (Revlimid, Vidaza and Abraxane) already on the market and more than 25 clinical trials for new drugs (or new uses for existing ones) in Phase III. While the company is already huge (market cap of $43 billion), Revlimid’s effectiveness against multiple myeloma and a growing list of other cancers is a powerful growth engine. The company also has a licensing agreement with Novartis that brings in royalties on Focalin XR and the entire Ritalin drug family. Revlimid accounted for two-thirds of the company’s sales in 2011 but the drug is still growing, with sales in 2013 estimated to grow 12%. The company met its Q4 earnings forecasts with its January 24 report, but sales were slightly below consensus. Despite this shortfall, which could have been punished sharply by investors, Celgene’s stock was stable, probably a result of high expectations for long-term growth; management believes earnings can hit $8 to $9 per share in 2015, up from about $5 last year.
Technical Analysis
CELG has never been a rocket, but the stock has put in an unbroken series of higher lows since early 2009. The latest big move came in early January when positive guidance bumped the stock out of a 12-week consolidation under resistance at 80. CELG popped from 77 to 100 in just two weeks and hardly moved at all when the official earnings report was released. CELG ticked up a couple of points last Friday, but relaxed back below 100 today. CELG looks like a great buy-and-hold stock, but it’s also been a good growth stock over the past few years. We think it’s buyable here or, preferably, on a dip toward 95.
CELG Weekly Chart
CELG Daily Chart
Cameron (CAM)
Why the Strength
Cameron is a good-sized player in the oil and gas equipment sector, with a specialty in sub-sea products that help drillers handle the flow of liquids. Business has been solid for some time, but the reason the stock is one of the strongest in the market is because of booming orders for its equipment ... especially for deepwater drilling-related equipment. Specifically, in the fourth quarter, sales and earnings beat expectations, although 2013 guidance was a bit light. But what investors focused on was the incredible bookings that Cameron recorded in the quarter; the firm landed a whopping $3.4 billion of new orders (including $2.5 billion of deepwater-related bookings), up from $1.9 billion of orders a year ago, which drove the company’s total backlog to a record $8.6 billion. When you combine those terrific order and backlog figures with the solid string of sales and earnings growth, still-elevated oil prices and what seems like ever-increasing demand for more deepwater equipment, it backs up the view that Cameron’s bottom line should grow 25% to 30% both this year and next. Throw in a reasonable valuation (16 times this year’s estimates) and a fresh breakout from a 23-month base (see below), and we think the stock has solid upside potential.
Technical Analysis
CAM topped out with most energy stocks in 2011, hitting 63 in March of that year before backing off. In the nearly two years since, the stock found support in the 40 area four times, and hit resistance just below 60 three times, most recently in September last year. Shares have been chugging higher since the market low in mid-November, but finally blasted to new highs last week after the quarterly report. CAM isn’t a go-go stock, so we think it’s best to target getting in on a dip of a couple of points, with a stop near 59.
CAM Weekly Chart
CAM Daily Chart
Previously Recommended Stocks
Below you’ll find Cabot Top Ten Trader recommended stocks. Those rated HOLD are stocks that traded within our suggested buy range within two weeks of appearing in the Top Ten and still look good; hold if you own them. Stocks rated WAIT have yet to dip into our suggested buy range … but can be bought if they do so within the next week.
Those stocks rated SELL should be sold if you own them; they will no longer be listed here. Finally, Stocks in the DROPPED category are those that failed to trade within our buy range within two weeks of our recommendation; that’s not a bad thing, we just never got the price we wanted. Please use this list to keep up with our latest thinking, and don’t hesitate to call or email us with any questions you may have. New recommendations each week are in green.
