Navellier Growth Blog

Bull Stocks Since the End of Bear

2008-05-07T15:45:51Z

On March 17, the stock market tumbled on the news that Bear Stearns had collapse and was being taken over for just $2 a share by JPMorgan Chase. I couldn't believe some of the bargains I saw, and I urged my Emerging Growth subscribers to load up on fundamentally superior stocks. Here's how some of our top Emerging Growth stocks have performed since March 17:

Graham Corp. (GHM) +76.9%
General Steel (GSI) +75.0%
GrafTech International (GTI) +61.4%
Synaptics Inc. (SYNA) +54.7%
Cypress Semiconductor (CY) +49.4%

Iron Man Is Cash King

2008-05-06T15:02:28Z

One of my favorite stocks in my Quantum Growth service is Marvel Entertainment (MVL), which is in the superhero business. Yesterday, the company reported first-quarter earnings of 58 cents per share which easily beat Wall Street's consensus of 43 cents per share. The stock gapped up nearly 10% in yesterday's trading. The company also raised its profit guidance for this year.

That wasn't the only good news for Marvel. The opening weekend for the new Iron Man movie was a smash. The movie brought in over $100 million, and over $200 million for its global haul. This was so big that one analyst said that Iron Man will contribute 55 cents per share to Marvel's bottom line. His earlier forecast was for just 15 cents per share.

You probably won't be surprised to hear that Iron Man 2 is scheduled to be released in 2010.

U.S. Jobless Rate "Shrinks" to 5%

2008-05-05T15:02:20Z

On Friday, the Labor Department announced that nonfarm payrolls fell by 20,000 in April, much less than economists' consensus estimates of 78,000 jobs lost, and significantly better than the average of 80,000 jobs lost each month in the first quarter. In addition, on Thursday, the Labor Department announced that weekly unemployment claims surged by 35,000 to 380,000, to the highest level in over five weeks. But in a statistical fluke, the unemployment rate fell to 5%, down from 5.1% in March, because more (362,000) unemployed workers got jobs in April than were laid off.

In other labor news, April wage inflation was in line with overall inflation, as average hourly rates increased by 3.4% in the last 12 months. However, that was offset by fewer hours worked and less overtime. The average work week fell to 33.7 hours and overtime in factories also fell. The bottom line is that, due to a weakening labor market, there is essentially no wage increase. As a result, further payroll losses are possible in May, so the May unemployment rate could rise.

One of the reasons more payroll losses are possible is due to the woes at Detroit's Big 3 auto makers. The U.S. manufacturing sector contracted for a third consecutive month in April as lower domestic demand put a damper on factory output, even as exports continued to rise. The Institute for Supply Management's (ISM) manufacturing index held steady at 48.6 in April, but that's still below a neutral reading of 50, which marks the inflection point between growth and contraction. Many manufacturers have been hit by rising energy costs and slowing U.S. demand, which have cut into order books. Some businesses have been able to offset these problems by selling more goods overseas as the weaker dollar makes U.S. goods seem more affordable to foreign buyers.

Breaking: The Fed Cuts By 25 Basis Points

2008-04-30T18:18:32Z

The Fed cut by 25 points bringing the Fed Funds rate down to 2%. Once again, there were two dissenting votes. Here's the statement:

The Federal Open Market Committee decided today to lower its target for the federal funds rate 25 basis points to 2 percent.
Recent information indicates that economic activity remains weak. Household and business spending has been subdued and labor markets have softened further. Financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters.

Although readings on core inflation have improved somewhat, energy and other commodity prices have increased, and some indicators of inflation expectations have risen in recent months. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook remains high. It will be necessary to continue to monitor inflation developments carefully.

The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time and to mitigate risks to economic activity. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Gary H. Stern; and Kevin M. Warsh. Voting against were Richard W. Fisher and Charles I. Plosser, who preferred no change in the target for the federal funds rate at this meeting.

In a related action, the Board of Governors unanimously approved a 25-basis-point decrease in the discount rate to 2-1/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Cleveland, Atlanta, and San Francisco.

This is probably their last rate cut which is very good news for us. All investors should be fully invested now.

Flowserve Beats the Street

2008-04-29T12:04:21Z

Flowserve's (FLS) latest earnings were simply stunning. The company flattened Wall Street's expectations. FLS' first-quarter earnings rose 159.3% to $1.53 per share compared with 59 cents per share last year. The Street was looking for 94 cents per share. Sales rose 23.6% to $993.3 million.

I was pleased to see Flowserve's gross margins increase to 34.8%. Even better, Flowserve raised its 2008 EPS guidance well above analysts' forecasts to between $5.90 and $6.20. The company's previous EPS guidance was between $5.10 and $5.40.

Looking Ahead to This Week's Fed Meeting

2008-04-28T11:54:19Z

Due to widespread anticipation that the Fed will cut key interest rates for maybe the last time at its FOMC meeting this week, the U.S. dollar is trying to rally a bit. Wall Street is now expecting the Fed to cut the Fed Funds rate by 0.25%, from 2.25% to 2%, despite the fact that the 1-month and 3-month Treasury bills are yielding only 0.80% and 1.34%, respectively. Frankly, since this is the Fed's last chance to avoid an official recession (two negative quarters of GDP), I would throw caution to the wind, cut the Fed Funds rate 0.5% to 1.75%, boldly declare that this is likely the last rate cut and then tell businesses and consumers to start spending money! The U.S. dollar might firm up if they would just declare that they are likely finished cutting rates for this cycle.

Increasingly, there are now rumblings that the Fed may not cut rates at all, despite falling market rates, due to fears that the Fed does not want to weaken the U.S. dollar further. At the last FOMC meeting on March 18, Dallas Fed President Richard Fisher and Philadelphia Fed President Charles Plosser argued that the Fed was moving too fast in cutting rates and voted against the subsequent 0.75% cut in the Fed Funds Rate. In fact, there have been dissenting votes at every FOMC meeting since they voted the first cut last September. Rich Yamarone, the director of economic research at Argus Research, said, "There is no reason why the Fed should be cutting rates now" and added, "the Fed is on dangerously thin ice." Yamarone also said that the Fed is "basically telling everyone 'we are abandoning any defense of the dollar.'"

As a result of these conflicting views, this week's FOMC meeting is filled with uncertainty. The Fed always has to walk a fine line, so we will carefully watch their statement after this week's FOMC meeting. Their statement may even have a bigger impact than their actual interest rate decision, which will most likely come with some dissenting votes, no matter what the Fed does.

Troubles at National City

2008-04-25T14:52:51Z

Two months ago, I identified 10 Financial Stocks to Sell in my free weekly eletter, "What's Working on Wall Street Now." This week has been horrible for one of the stocks that I highlighted. On Monday, National City (NCC) posted a first-quarter loss of $171 million. The bank cut its dividend from 21 cents to just a penny a share. They also said that they raised $7 billion to secure their capital base. Since I said to dump the shares, National City is down 62%.

Apple's Earnings Soar

2008-04-24T14:07:22Z

The company had a great quarter. EPS came in at $1.16, nine cents ahead of Wall Street's estimates. Mac sales jumped 51%.

Buoyed by unusually strong Macintosh sales, the company grew notably faster than the rest of the computer market worldwide in the first three months of the year. Revenue increased 43 percent from the same period a year ago, the company reported. Steven P. Jobs, Apple's chief executive, characterized the quarter as the strongest in Apple's history.
He attributed the growth to higher traffic in the company's 181 stores in the United States. The company reported that it had 33.7 million visitors to its stores in the United States, up 57 percent from the same quarter a year ago. Mr. Jobs said that belied the gloom that was being expressed about the American economy.

"We're not economists, so we don't have any more insight than everyone else, but there were sure a lot of people in our stores last quarter," Mr. Jobs said in an interview.

Despite new products like the iPhone, variations of the iPod and the Apple TV set-top box, this was a Macintosh quarter. Apple shipped 2.3 million Mac computers in the quarter, 51 percent more than in the quarter a year ago. Revenue on those computers increased 54 percent.

But it also said it sold 10.6 million iPods during the quarter, flat with the year-ago quarter. Analysts said iPod sales were within their expectations and that it was a sign that the product category was maturing,

"The big question was, would Apple really feel the pinch from a weakening U.S. consumer? And the somewhat unequivocal answer was, no, not yet," said A. M. Saggonaghi Jr., a senior analyst at Bernstein Research.

Wall Strip Features Exelon

2008-04-23T14:41:55Z

Julia Alexandria looks at Exelon (EXC), one of our Blue Chip Growth stocks.

Five Factors Helping Future Earnings

2008-04-22T20:09:18Z

Even if the economy has an anemic recovery, corporate earnings are poised to surge in the second half of 2008. Third quarter earnings should rise by 30% and fourth-quarter earnings should rise by an amazing 70%. This will be the strongest earnings growth for the S&P 500 in decades.

I know what you are thinking, "How can earnings surge so dramatically when it's not yet clear how strong the recovery will be?" Well, it's not that difficult to explain. The reason is because the massive write-downs due to the credit crisis started in the third quarter peaked with the fourth quarter. As a result, the year-over-year earnings comparisons will be very favorable even if the economy still isn't growing strongly.

There are five major factors working to help the future earnings environment:

• The current trough in corporate earnings
• We're near the end of the Fed's interest rate cuts
• There's a near record amount of cash on the sidelines
• Corporate buy backs are relentless
• The market typically rallies heading into a presidential election

Even the "sell in May and go away" crowd doesn't seem to be worried about the stock market. The reason is that this phenomenon often doesn't apply in a presidential election year.

The catalyst for selling in May and going away is often caused by big gains early in the year. Traders then sit on their gains until the end of the year, so they can collect a big year-end bonus. So the stronger the start to the year, the bigger problem that sell in May and go away can be for investors. Since this year got off to a bad start and we're in an election year, I'm not worried about investors selling in May and going away this year.

Strong Earnings from McDonald's

2008-04-22T18:06:20Z

On this weekend's hotline, I rated McDonald's (MCD) as my top buy for the week. The company reported strong first-quarter earnings this morning. For the first three months of the year, MCD earned 81 cents a share. That's a big jump over the 62 cents a share it made last year.

This really surprised Wall Street which was expecting just 70 cents per share. The major reason for the good quarter was the weak dollar and strong global sales. In fact, the company's U.S. business is barely growing at all.

Many of our oil stocks are looking good today as oil closes in on $120 a barrel.

Energy Update from Russia

2008-04-21T16:38:11Z

The energy news from Russia is not so encouraging. Rumors are emerging from Russia that its crude oil output may have peaked. This news is another reason why crude oil prices soared last week. According to the International Energy Agency (IEA), Russian oil output fell last quarter, for the first time in a decade. The IEA reported that Russia's crude oil production averaged about 10 million barrels a day last quarter, a 1% drop compared to the first quarter of 2007.

Declining production from one of the world's largest oil exporters puts further pressures on an already strained oil market and adds to the potential for higher prices for the global economy. Global production constraints, combined with surging demand in emerging markets, rising oil-field expenses and political instability in Africa, the Middle East and Venezuela is anticipated to keep crude oil prices high, especially during the summer months, when gasoline demand is high.

Oil industry observers and Russian officials generally blame the country's production slowdown on a combination of weather and tight electricity supplies in some parts of the country. A longer-term concern is the aging of the Siberian fields that once dominated Russian production growth. Some Western analysts deny the decline and point to optimistic data and forecasts. Citigroup said in a report last month that it expects Russian oil volumes to increase by 1.5 million barrels a day between now and 2012, largely due to new projects in eastern Siberia. However, the Citigroup report also cautioned that "Russian oil production growth is no longer to be taken for granted."

The IEA predicts Russian oil production will rise again later this year. However, the IEA estimates an annual increase of only 0.8% over 2007, compared with an average increase of 2.5% in the past three years and much faster growth in previous years. Russia's energy ministry says it expects a rise of 1.8%. However, earlier this month, Yuri Trutnev, Russia's natural-resources minister, said on state television that the country's full-year 2008 production may be lower than in 2007. Leonid Fedun, the 52-year-old vice-president of Lukoil -Russia's largest independent oil company - recently said that he believed last year's Russian oil production of about 10 million barrels per day was the highest he would see "in his lifetime." Fedun compared Russia with the North Sea and Mexico, where oil production is declining dramatically and said that in the oil-rich region of western Siberia, "the period of intense oil production is over."

Russia's production slowdown highlights a troubling reality, namely that despite soaring oil prices in the past five years, crude oil output from nations outside the Organization for Petroleum Exporting Countries (OPEC) has remained essentially flat since 2005. As a result, the normal link between high crude oil prices and increasing oil production has been disrupted. Now, we rely on new finds (as in Brazil), but these huge new discoveries will take several years to come online.

The Next Fed Cut Will Be the Last

2008-04-17T11:39:10Z

I'm convinced that the Federal Reserve will cut interest rates for the last time at their next meeting on April 29-30. I expect that the Fed will bit the bullet one more time--after a heated debate--and cut rates by 0.5%. This is simply because market rates are still at the shockingly low levels, and the Fed never fights market rates.

The Fed's corundum is that the more they cut rates, the more they weaken the dollar and accelerate commodity inflation. Of the world's commodities, 88% are traded in dollars. The net result is stagflation, just like we had back in the 1970s. In fact, the two dissenting Fed members at the last meeting, Charles Plosser and Richard Fisher, warned that the public was beginning to think that rising prices were permanent.

The Fed Funds rate is currently at 2.25%/ I think it with would be a BIG mistake if the Fed lowered the rate below 1.75%. After 9/11, Greenspan went all the way down to 1% and held it there too long, and that helped bring about the housing bubble.

Quantum Growth Today

2008-04-16T20:29:13Z

All 27 Quantum Growth stocks rallied today. Our average gain was 3.70% compared with 2.27% for the S&P 500.

Banco Bradesco Splits 3-for-2

2008-04-16T16:27:15Z

Attention Quantum Growth investors. There's no need to panic. Banco Bradesco (BBD) isn't down 30% today. The stock split 3-for-2.

If you owned 100 shares, you now have 150. My buy-below and stop-loss prices drop to and $20.85 and $16.93. Bradesco is actually doing very well this morning.