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Hotline Sample Report

This report is a sample for information purposes only. These recommendations are closed.
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3/23/2010 9:25:36 AM Eastern Time

The Day After is Embraced, for Now
By Charles Payne, CEO & Principal Analyst

The day after the cram down of healthcare legislation is being viewed as welcoming as the market will trade on different drivers, including the latest news on housing (after the open look for existing home sales). The news isn't expected to be pretty, and that's actually good for the market, which still needs to sandbag expectations for booster shots. Even if you say that the medicine in those shots is a placebo, it doesn't matter if investors believe it's the real deal and it makes them feel better. That's the challenge; to make would-be investors sitting on the sidelines feel better. They felt a sigh of relief yesterday as the worst possible outcome didn't occur and some are saying down the line the bill could be dismantled.

There are signs, such as Wall Street's fear gauge otherwise known as the VIX (note the double-bottom on chart below), that suggest there is too much complacency and perhaps the market is simply due for a pullback. There is validity to that kind of thinking, but the overarching theme is that pile of cash on the sideline and how to get it into equities. For some, it might take a dip as we witnessed yesterday when investors moved in like serpents on the opening dip.

Areas of Interest
By: Brian Sozzi, Research Analyst

Chain-store sales, as compiled by ICSC/Goldman, for the week ended March 20 advanced 0.3%, reversing the -0.4% print from the prior week. It continues to be my view that consumers are waiting for the last minute to purchase goods for Easter, essentially playing a cat and mouse game with profit thirsty retailers. If sales do not spike this week, against what appears to be generally favorable weather conditions, I would be concerned that sales momentum that was apparent exiting 4Q is decelerating.

Food for thought; valuations in the specialty apparel retail sector are approaching frothy in my estimation. Most stocks in my institutional coverage arena are trading on P/E multiples, and to a lesser extent, P/S multiples, that are ahead of historical averages and at premiums to the benchmark indices. Such premiums, justifiable for some companies as I am modeling for faster than average growth relative to peers and the market, are devoid of the risks that I foresee on the horizon in 2H10. Those risks include (1) supply chain inflation, mainly stemming from China; (2) return of variable expenses in the form of employee compensation and investment spending; (3) heightened consensus earnings estimates at a time of likely rising costs and sales unknowns; (4) inventory investments causing increased markdowns if sales were to disappoint.

A host of Federal Reserve governors were out last night and this morning commenting on policy and the economy. One thing stood out to me from the reading of all their comments…there is disagreement inside the Fed regarding policy that is not being captured by Hoenig's second consecutive dissenting vote earlier this month.

Long Idea: POLYONE CORPORATION (POL) @ $10.25
Click here to view the trading alerts that followed this recommendation

Trading Parameters

Entry Price Entry Limit Stop Loss Trading Target Target Long-term Target Options

$10.25 see comments $9.00 $12.00 $13 N/A N/A

Options Trade Parameters

Type Option Symbol Entry Price Strike Price Expiration Date

Call POL100918C00010000 $1.65 $10.00 9/17/2010

BACKGROUND: PolyOne Corporation provides specialized polymer materials, services, and solutions with operations in thermoplastic compounds, specialty polymer formulations, color and additive systems, thermoplastic resin distribution, and specialty polyvinyl chloride (PVC) resins. The company's International Color and Engineered Materials segment offers color and additive masterbatches, and engineered materials. Its Specialty Engineered Materials segment provides custom plastic compounding services and solutions for processors of thermoplastic materials to various markets, as well as offers a range of thermoplastic elastomer compounds for consumer, packaging, and medical applications. PolyOne's Specialty Color, Additives, and Inks segment provides specialized color and additive concentrates, as well as inks and latexes. Its Performance Products and Solutions segment offers vinyl compounds, vinyl resins, and specialty coating materials based on vinyl to various manufacturers of plastic parts and consumer-oriented products, as well as offers materials testing and component analysis, custom compound development, colorant and additive, design assistance, structural analyses, process simulations, and extruder screw design services. The company's PolyOne Distribution segment distributes engineering and commodity grade resins to custom injection molders and extruders. PolyOne's Resin and Intermediates segment produces chlorine and caustic soda. The company primarily serves building and const

SKINNY: We believe that strengthening demand and new business contributions should boost revenues and earnings for the next couple of quarters. The company has been focused on winning new business in all three of its strategic segments and is making strong progress in this endeavor. Moreover, its joint venture with SunBelt is progressing well and should begin to show profitability very soon. The company is seeing strength in its healthcare and consumer businesses, and if housing picks back up, they will see even more upside to revenues. We see shares of POL moving to $12.00 and then to $13.00; use $9.00 as a mental stop-loss.

Analyst Coverage

KeyBanc Capital Mkts Downgraded to Hold