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Hotline Sample Report
This report is a sample for information purposes only. These recommendations are closed.
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7/6/2010 9:40:48 AM Eastern Time
Rogues Rebound
By Charles Payne, CEO & Principal Analyst
Is it a post patriotic reaction to the Fourth of July or is the market so oversold investors are sifting through the ashes to find opportunities? I actually think it's a combination of both. The market is oversold although it has come down for good reasons. There is the dilemma for investors that are more likely to head for the hills than buy on weakness. There are several facts about the market that make it attractive. For sure I think there is immense value; stocks are extremely oversold including those affected by the dollar. Investor sentiment is so low its having a self fulfilling effect but it's also the kind of pessimism that turns out to be a buying opportunity. Of course the sentiment also leaves the market vulnerable to swift moves lower and that has chased a lot of people out and is keeping a lot of would-be investors at bay.
This should be a quiet week with respect to news and volumes and that could help the market reclaim some equilibrium. On that note, the market will still need something akin to good news. Not to be confused with silver linings but actual good news. The best opportunities for that will begin next week with the next round of earnings announcements. Interestingly there is a piece on Bloomberg saying earnings estimates have actually been increasing. I've mentioned several times, however, good earnings aren't always the panacea. There is the matter of $10.3 trillion in earnings not being reflected in the S&P 500 for the period of 1999 to 2009 where stocks finished lower after a decade of trading. It's hard to imagine top line demand being the main driver of bottom line success but if there is any inkling that consumers stepped up then earnings could power stocks much higher.
In the meantime, a report out this morning from Reis showed that office vacancies hit 17.4% in the second quarter up from 17.3% and 15.9% q/q and y/y respectively. The lowest rate is in DC at 10.0% while the worst is Detroit at 26.3%. Taxpayer money bolstering a government run by czars, endless committees and more layers of bureaucracy helping the former but the latter is a warning of what happens when an economy relies too much on a single industry that fought basic runs of economics. Last year, Reis forecasted that office vacancies would hit an all-time high of 18.2% this year before topping out. There is a chance that will not happen but it should be noted the rate peaked at 17.0% during the last recession. These vacancies underscore the weakness of the economy but also the point that entrepreneurs aren't leaping at chances to turn lemons into lemonade.
We need those entrepreneurs to step up to the plate but they can't in such a hostile environment.
Technical View
The S&P 500 is in no man's land on a six-month chart having broken all semblances of support levels. Hopefully 1,000 will provide some support. On the upside, a close above 1,050 could trigger some buying although the big upside test comes at 1,132.
The Rogues Gallery of Mega Companies
All the evil companies of 2010 have had news this morning.
BP apparently is seeking out investments from sovereign wealth funds. This actually makes sense as the company is cheap right now and it needs the help if it's going to survive. Remember at the beginning of the banking crisis when there was speculation China's sovereign wealth fund was prepared to pay Bear Stearns $100.00 a share and people in America went ballistic. They wouldn't have it, China owning such a large and important banking institution. These days xenophobia is out and survival is in so this scuttlebutt makes sense. If a Middle Eastern entity made a move, it would be interesting as many there would love to own the company they feel ripped them off back in the day. In the meantime BP has spent over $3.0 trillion on the Gulf clean up and the stock got an upgrade this morning.
Goldman Sachs (GS) got an upgrade, too. JP Morgan likes the stock down here and I have to agree the stock is extremely oversold.
Toyota Motors (TM) was able to surge to the top of the American market on efficiency and great product. Today begins its latest auto recall this morning on word they knew about problems with the Lexus two years ago.
If these rogue stocks can rally then anything is possible. (Actually BP is a high risk buy and GS a buy although I would wait on TM.)
Long Idea: Veeco Instruments Inc. (VECO) @ $35.45
Click here to view the trading alerts that followed this recommendation
| Entry Price |
Entry Limit |
Stop Loss |
Trading Target |
Target |
Long-term Target |
Options |
| $35.45 |
see comments |
N/A |
N/A |
$49 |
N/A |
N/A |
| Type |
Option Symbol |
Entry Price |
Strike Price |
Expiration Date |
| Call |
VECO101016C00035000 |
$5.80 |
$35.00 |
10/15/2010 |
BACKGROUND: Veeco Instruments Inc., together with its subsidiaries, designs, manufactures, and markets solutions for customers in the high brightness light emitting diode (HB LED), solar, data storage, scientific research, semiconductor, and industrial markets worldwide. The company operates in three segments: LED & Solar Process Equipment, Data Storage Process Equipment, and Metrology. The LED & Solar Process Equipment segment engages in the design and manufacture of metal organic chemical vapor deposition systems that are used to make HB LEDs or solar cells; molecular beam epitaxy systems that are used in various applications, including alternative energy, power devices, and scientific research; and thermal evaporation sources and a line of Web and glass deposition systems used to create copper, indium, gallium, selenide (CIGS) thin film solar cells. The Data Storage Process Equipment segment designs and manufactures equipment comprising ion beam etch, ion beam deposition, diamond-like carbon, physical vapor deposition, chemical vapor deposition, and dicing and slicing systems, which are used in the production of thin film magnetic heads that read and write data on hard disk drives. The Metrology segment designs and manufactures atomic force microscopes, scanning probe microscopes, stylus profilers, and 3D optical microscopes that provide critical surface measurements in research and production environments. Its products are used in universities, research facilities, and scientific cen
SKINNY: Despite the volatility, this is a stock worthy of retirement accounts. At its Fridays close the stock was changing hands at a PEG ratio of 0.56 which means it's very cheap compared to its rate of growth. The reason it is growing so fast is it provides chips for the LED, solar, and data storage spaces. Obviously the stock has been under pressure and there is a 23% short position so the stock could remain volatile. Moreover, there has been 40 insider sells for 1.2 million shares in the past six months. But the company has been executing, consistently beating the Street although the 2% beat for the March quarter spooked investors accustomed to bigger beats. Nonetheless earnings consensus for FY10 & FY11 have been soaring over the past three months. Keep in mind this was a $4.00 stock in February 2009 so it's up huge but down $20.00 in a few months. I'd like to see a close above $35.00 then the stock has room to $49.00. We don't stop out on price action on the Hotline but would revisit the fundamental story if the stock breached $29.00 on the downside.
| Analyst Coverage |
| UBS Reiterated to Buy |
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