Earnings Remain Strong, But Unable To Move Market!

The S&P Index finished the week unchanged despite another positive round of earnings announcements. According to reports, 180 S&P 500 companies reported earnings with 80% topping EPS estimates. The Corporate world is clearly demonstrating earnings power and balance sheets remain overwhelmingly strong. In other news, GDP estimates were in line with the consensus of 2%. That may not be fantastic growth, but the trend is up following the 1.7% second quarter growth. Positive reports also came from existing home sales and initial jobless claims, both reporting results that were better than expected. With all this good news, how come the market failed to moved higher? Several big events are scheduled for next week, and we suspect the market is just taking a pause in advance of that news. The FED is expected to make an announcement on plans for quantitative easing. In addition, midterm elections are next week. Both events are potentially market moving catalysts that could influence the longer term market trend. We remain bullish long term and frankly suggest the market needs a breather after the strong run from September. The market could suffer a bit of a pullback if there is a major surprise next week, but that represents a good buying opportunity if that happens. Volatility rose somewhat last week, but option premiums remain low and are an excellent way to buy protection for your portfolio over the short term. We mentioned last week that we have been mostly on the sidelines relative to trading activity throughout the third quarter earnings season and will remain so for another week or two. A case in point regarding the risk around earnings season is IMPAX Laboratories, a stock we own in our stock portfolios. IMPAX dropped 13% on Friday in the absence of any news, but in anticipation of the company earnings announcement on Monday next week. That is a really big move based on "whispers", and the stock may have been oversold. Our plan is to hold at least through the earnings announcement and then gauge company prospects. When a stock makes big irrational moves like that in the absence of information, investors have little choice but to wait out the news. All in all, we remain optimistic on the broad market and plan to increase our call buying activity in the coming weeks. Now is still a good time to take profits in stocks that have had strong runs. We continue to beat the market in both stock portfolios and in our best performing portfolio, have earned a YTD return that is double that of the market.

Momentum And Value (MAV Screen): Breakout Stocks To Buy!

What Stock Tips do we have? For this week, we added one new stock to our buy list which brings our total to ten stocks. The returning stars are Dorman Products (DORM, Auto Parts), Clearwater Paper (CLW, Paper Products), TRW Automotive (TRW, Auto Parts), EBIX (Software & Programming), Medicis Pharmaceutical (MRX, Drugs), Nanometrics (NANO, Semiconductors), Erie Insurance (ERIE, Insurance), Sapient Corp (SAPE, Software), and TPC Group (TPCG, Chemical Manufacturing). We wrote about Nanometrics last week over concern from its recent price action. The stock recovered somewhat last week but the real test will come next week with their quarterly earnings report. We will not consider buying NANO until after the dust settles from that announcement. Clearwater Paper reported so-so earnings and investors may want to see how the stock responds over the next few weeks before jumping in. Our timing was excellent with Dorman Products as the company just released earnings that beat e xpectations just after we added to our buy list. DORM has already had a strong run, but there appears more left in the tank as the Auto Parts industry has really taken off. We added one new stock this week, InterDigital (IDCC, Communications Equipment). IDCC designs and develops advanced digital wireless technologies for use in digital cellular and wireless products and networks. InterDigital just announced an earnings and revenue surprise and the stock jumped the past two days. This stock is cheap at a PE of 9.6 in light of 34% revenue growth and an earnings growth rate in triple digits. The company will not sustain triple digit earnings growth over the long term, but double digits seems well within reach in a world that continues to moves wireless at an ever increasing rate. Institutions own only 55% of the outstanding stock and when institutions begin to jump on board, the stock will move much higher. Short interest was high at 15% in advance of their positive ear nings report, so the flight to cover should also push the IDCC stock higher over the near term. Overall, we are positive on the market, although there is risk we could see a dip over the near term. On a pullback, look to buy the stocks in our portfolios or watch list and take some profits where you can.

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