The FED is determined to lift the economy out of the doldrums after announcing another round of quantitative easing with purchases of $600 billion in treasury securities. That will help keep interest rates low and ensure adequate liquidity in the marketplace. Equity markets responded favorably and smart investors will follow the FED lead and increase their risk exposure. In other big news the Republicans regained House control and added senate seats in hotly contested mid-term elections. Equity markets viewed the election results favorably. The FED had been signaling their intentions for a few weeks with plans on spreading the purchasing over several months. We just hope that the FED does not stoke the fire too much and as a result drive inflation to much higher levels. Frankly, the economy needs time to heal and to unwind years of easy money. Some pain is good to ensure more sustainable long term economic health. Private payrolls have been increasing now for four straight months, a sign the economy is stabilizing. No doubt there is a long way to go before unemployment is back to normal levels, but the trend is positive. Third quarter earnings season is winding down and generally speaking, corporate performance was excellent. The stock market has responded driving the broad market index to two year highs and a 9.9% YTD return. Long term we remain very bullish on stocks for all of the reasons discussed above. However, there is risk near term that the market could stumble, particularly following an incredible two month run of double digit gains since September. Frankly, we would like to see the market consolidate and take a bit of a pause from its recent run. If we get a pullback or longer consolidation period, consider that a great time to buy. With volatility at very low levels, now is also a good time to buy insurance for your portfolio through options. We took some gains last week by selling our position in Maidenform Brands (MFB) after a 29% gain. We also sold a call spread option position in Altera for a 95% gain. We are now 70% invested in our stock portfolios and plan to gradually increase that allocation over the next few weeks with new stock purchases. We also plan to get more aggressive with options trading over the coming months.
Momentum And Value (MAV Screen): Breakout Stocks To Buy!
What Stock Tips do we have? For this week, we added two new stocks and dropped two which leaves our buy list with ten stocks. The returning stars are Dorman Products (DORM, Auto Parts), Clearwater Paper (CLW, Paper Products), TRW Automotive (TRW, Auto Parts), EBIX (Software & Programming), Erie Insurance (ERIE, Insurance), Sapient Corp (SAPE, Software), InterDigital (IDCC, Communications Equipment) and TPC Group (TPCG, Chemical Manufacturing). TRW is already up 32% since we first added to our list on Sep 17. We like TRW but at these levels would only buy on a pullback. DORM is in the same industry as TRW and has rocketed to a 22% gain in just two weeks. DORM is another stock to buy on a pullback or longer consolidation period. Sapient Corp released earnings last week that exceeded estimates and even raised their forecast and the stock subsequently dropped 6%. The decline in SAPE does not make sense, another sign of an irrational market, and represents a good buying opportunity. We lost patience with Medicis Pharmaceutical and dropped this one from our buy list. MRX has remained flat for nearly two months despite the strong market rally and we try to avoid stocks that underperform the market. We also dropped Nanometrics as this stock has not only underperformed the market, but has lost ground. NANO is a stock that will likely do well, but the recent volatility just does not warrant the risk. Triquint Semiconductor (TQNT, Semiconductors) offers RF products in three markets including handsets, networks, and military systems. We decided to add TQNT to our buy list after the company exceeded recent earnings estimates. The stock is cheap with a PE of 10.5 and revenue growth of 34%. Smart phones will continue to be a hot market as technology expands into functionality once dominated by laptops, GPS navigation devices, and even the book readers. TQNT will benefit from these trends. We also added Viropharma (VPHM, Biotechnology), a company dedicated to the development and commercialization of products that address serious diseases. The company is small and currently markets only two products, but earnings growth is gaining momentum and the company surprised on the upside recent earnings by 44%. We think analyst estimates on future earnings estimates are also low and the company could see sharp price gains. Of course, volatility can be significant on small price stocks that have lower trading volumes, so invest with those risks in mind.
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