Stocks blasted higher on Friday to put the finishing touches on another winning week as better than expected economic data, strong earnings and optimism for the Euro zone lifted the mood. For the week, the Dow and S&P500 both gained more than 1% for their third consecutive week of gains while the NASDAQ closed in the red.
The biggest driver of the market continues to be the financial stability of the Euro zone. France and Germany promised a comprehensive financial package to support Greece, banks and weaker EU members by the end of the month, so the market will continue to be very sensitive to that story as the deadline approaches. In the meantime, the financial ministers who control things over there are working furiously to find an agreement on how to handle this mess that has been dragging on since February of 2010. For the time being the market appears confident a resolution will be found, but this is a very dynamic story so that could change on a dime.
The market also gained on some upbeat economic data, with Thursday’s manufacturing report from the Philly Fed showing its first gain in 3 months. That lifted hope that the US economy would find a way to avoid the economic recession it has been flirting with for the last few months.
And finally, we’re seeing some pretty solid results on the earnings front, with 75% of companies chiming in with results that came in ahead of expectations. Earnings have been a bright spot of the recovery for the last 2 years, so it looks like that trend is still very much in play.
So as it stands, the averages have spiked above the recent 2-month trading range for a new high. That is most definitely a bullish signal as investors choose to focus on earnings and valuations. Moving forward, the big question mark remains Europe, where good or bad news will continue to have a big impact on the market. Take a look at the chart below, where the Dow Jones Industrial average just logged a new 2-month high (daily chart/each bar represents one day).
Dow Jones-New 2-month high:
Updates:
McDonald’s Corp (MCD) stepped up with awesome Q3 results on Friday, closing the day with a Dow leading 3.72% as profits spiked 9% from last year. That was good enough for a new 52-week and all-time high at $92.45. We’ve also got a solid 3.3% dividend in play, so MCD has been a big winner in 2011.
We also saw some nice movement from Buckeye Partners (BPL), adding 3% on the week after one of its peers made a deal to buy a competitor. Any time there is consolidation in an industry, when companies start buying each other, it is a signal of both confidence and strong financial resources. That has been on display lately in the energy sector as the recent sell off in energy stocks has sweetened the valuation picture.
But on the other side of the coin, we saw a rare miss from Apple, Inc. (AAPL), reporting Q3 results that fell slightly short of expectations. That weighed on shares, down 6% on the week and falling back below the $400 mark. The main reason for the miss was due to some production delays with the iPhone 4s, so it doesn’t look like any long-term weakness was revealed in the company’s armor. But in spite of the miss, we’re still seeing estimate move higher, with analysts now looking for 2011 earnings of more than $34 per share. So when you factor in the company’s massive cash position, shares of AAPL are trading deep into value territory, which implies significant upside.
We saw some more weakness from EZcorp (EZPW) this week, falling 11% on news it was purchasing industry competitor Cash Converters United LC. Shares are also being weighed down by the report from last week naming EZcorp as one of the 10 most dangerous stocks to own. We talked about that report in detail last week, but we still like the pawning and lending industry and EZcorp in specific, so for the time being we are going to stick with our first pick.
Flipping back to some good news, Cimarex Energy (XEC) was up 7% on the week as investors moved to take advantage of some very compelling long-term value in energy stocks that have taken a pretty serious beating over the last two months. XEC has a long way to go to get back to its April high, but this is definitely a step in the right direction.
And finally, we have AmerisourceBergen (ABC), adding 4% on the week for a solid out performance. As it stands, this generic drugs wholesales is trading less than 10% away from its 52-week high just above $43.
That’s all for this week, but until next time, here is a good article discussing how the recent sell off in oil and energy stocks is leading to buyouts and industry consolidation on very compelling value. Enjoy.
Your Investment Partner,
Mike
