Jobs
It was quite clear last week what the market wants, and that is jobs! And it got nearly 250,000 new ones last month. The unemployment rate fell to 8.3% on Friday, and the market responded with a surge. The week had been set up by a number of positive economic releases, including the ISM at 56.8 versus an expected 53.1 and last month’s 52.6. Construction spending increased to 1.5% versus an expected 0.4%. Earlier in the week, personal income was also up a bit more than expected, but that had been roughly offset by a drop in personal spending. Chicago PMI and consumer confidence were slight disappointments, but all was forgiven on Friday.
Small-cap Growth led the style/caps up +4.3% for the week and a stellar +11.6% for the month of January. Large-cap Growth trailed but was still up a sturdy +2.3% for the week, and Large-cap Value trailed for the month at a positive +5%. That is known as a very good month when your worst style/cap is only up +5%.
Fortunately, our party wasn’t spoiled as the EU was relatively quiet for the week. Of course, being quiet and putting problems to bed are two very different things. Sorry about that.
While corporate news was mediocre the first few weeks of the quarter, the number of positive surprises was much more frequent over the past week. Seagate Technology (STX) was especially strong for its last quarter, and it probably helped that the dollar was flat to down, and Treasuries were beaten up. Mastercard (MA), Whirlpool (WHR), Dow Chemical (DOW) and others joined the party with positive surprises. Amazon (AMZN) was the most serious negative surprise.
The bottom line is that the S&P 500 reached 1350 for the first time since early last summer, and the Dandy Dow Jones hit its highest number since 2008. If that doesn’t impress you, consider that the NASDAQ reached 2908, its high since late 2000!
Those are quite impressive new highs, and yet, valuations are still reasonable. The average forward P/E of the TOP 1000 Sabrient GARP (growth at a reasonable price) stocks is 11.60, which is still lower than the high of 11.71 in May, 2011 (the low was 9.59 in mid-August). The current P/E of the Top 1000 is now 18.18 versus 18.30 in May and 15.53 at the low. To put it another way, the forward looking growth projections for the next quarter are slightly better than they were last year at this time. So valuations are approximately the same with slightly better quarter- and year-ahead numbers than in May.
There are more ways to see if bargains are still available. Among our TOP 100 Sabrient GARP stocks, the forward P/E is now 7.87 versus 8.23 in May, 2011. Current P/E is now 9.42 versus 10.33 in May, 2011, and quarter-ahead growth is still attractive, but it won’t produce as large of quarter-over-quarter gains as last year. While the quarter ahead doesn’t look quite as good as it did in May, 2011, valuations are also lower for the TOP 100 stocks.
Clearly, there are still good bargains available. Among them are the 4 stocks we found with our search tool. While caution must remain with the global economic situation, our own high debt and global military tensions, reasonably priced stocks still remain more attractive than other alternatives given the very low interest rate environment, paltry opportunities in the real estate field, and sky-high prices for precious metals.
4 Stock Ideas for this Market
This week, I created a custom search with MyStockFinder, emphasizing high value, high growth, high earnings quality and momentum. Here are four stock ideas for your consideration:
Ashbury Automotive Group, Inc. (ABG) – Consumer Cyclical
Grupo Financiero Galicia S.A. (GGAL) – Energy
Datalink Corporation (DTLK)—Technology
NN, Inc. (NNBR)—Industrials
Until next week,
David Brown
Chief Market Strategist
Sabrient Systems, LLC.
Leaders in Investment Research
http://www.sabrient.com
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Full disclosure: The author does not hold positions in any of the stocks mentioned in this article.
Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account their personal financial circumstances in acting on any rankings or stock selections provided by Sabrient. Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.
