Market Beating Foresight: January Disappoints, But Creates Buying Opportunity!

January came to an end with the market moving lower for a third consecutive week. The YTD market performance dropped to a loss of -3.7%. Some prognosticators suggest that as January goes so does the rest of the year. That pessimistic view would mean the S&P would finish lower than current levels by the year end. But we do not think that is what will unfold. We see recent declines as reflecting very short term uncertainties and nervousness. We do not think these factors will restrain the market from advancing over the long term. In short, investor's fretted over the Bernanke reappointment, financial industry reform, and the state of the ruin (as Leno would say). These issues were given far too much weight when measured against the overwhelmingly positive story in the economy. So far, 76% of companies have exceeded their quarterly earnings estimates, and another 8% met expectations. Those are excellent performance numbers from many companies across industries. In add ition, very strong fourth quarter GDP growth figures were announced this week. In our minds, the economy is beginning to improve despite the continued rise in foreclosures and the unemployment rate, both of which are lagging indicators that will continue to rise this year despite an improving economy. Make no mistake, we expect only a very modest improvement in the economy and the stock market for the year, but still consider the market declines over recent weeks as a buying opportunity. As Thomas Lee from JP Morgan says, take advantage of the Washington concerns today and use that as a buying opportunity. Overall, the market has gotten a bit oversold, we see a return to previous highs hit in January over the near term, but would caution that volatility could remain high over the next week or so.

Momentum And Value Screen: Hot Stocks To Buy

What Stock Tips do we have? VSE Corp (VSEC, Business Services), Continucare (CNU, Healthcare Facilities), American Italian Pasta (AIPC, Food Processing), International Power PLC (IPRPY, Electric Utilities), and Lihua International (LIWA, Misc. Fabricated Products) are all carryovers from our buy list last week. VSE Corp, Continucare, and American Italian Pasta will each announce quarterly earnings next week and we plan to wait until after those reports before making buying decisions. Continucare and American Italian Pasta have held up well so far, and buy signs will flash if their stock prices continue to consolidate or start to move upward next week. Lihua stock has dropped significantly as China based stocks came under significant selling pressure last week. Speculation out of China was that the government would operate to restrain growth over newfound fears of inflation. That speculation intensified the selling pressure on these stocks and Lihua stock fell sharply in sympathy. We consider the drop in Lihua an excellent buying opportunity and will try to buy in at a good price next week. We think the market reaction to the Chinese restraint overblown, as China will continue to be one of the strongest economies this year. We also added two new stocks to our buy list including Ezcorp (EZPW, Consumer Financial Services) and Delta Apparel (DLA, Apparel/Accessories). Ezcorp lends or provides credit services to individuals who do not have cash resources or access to credit to meet short-term cash needs. The company also operates pawn stores in the United States and Mexico. Some investors may be a little queasy with this industry which can be fraught with consumer fraud. But the fact is this company creates very strong cash flow and the management team has been very successful over time. We think the company is worth the risk and the investment. We also added Delta Apparel to our buy watch, a company that manages a portfolio of branded and private label active wear apparel and headwear. The company is doing a lot of things right as the stock price has advanced sharply over the past 6 months. However, despite that rise the stock price is still a long way from highs hit in late 2007 which leaves plenty of room to run. Delta stock is still reasonably priced at a PE of 12 and analyst support is strong. Overall, the broad market has been losing ground over the last three weeks and we think now is an excellent buying opportunity. The economic fundamentals are beginning to improve and valuations are reasonable. Buying opportunities are created when selling pressures intensify and oversold conditions are created, which is what we have seen over the past few weeks. Yes, there are concerns over China and government reform, but we do not think those factors will depress stock prices over the longer term.

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