The Sabrient Blog

Here is an excerpt from Daniel Sckolnik’s latest article on Seeking Alpha:

As of Wednesday’s market close, the Baker’s Dozen (BD) was up a sturdy 14.8% YTD, compared to 4.8% for SPY over the course of the same time period.

Another popular basket of stocks, the 2012 version of the “Dogs of the Dow,” (DOTD) is up slightly less than 4% on the year.

Admittedly, the Baker’s Dozen, like the DOTD, is designed as a year-long “Buy and Hold” strategy, and it is impossible to predict how the next 11 months shall unfold. Still, 14.8% is a number that would have to inspire a certain degree of confidence in the picks chosen by David Brown, Sabrient’s founder and Chief Market Strategist, which were gleaned from the firm’s quantitative models, with an assist from Gradient Analytics, the firm’s qualitative division. Read more…

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The stock market has continued its bullish ways—thanks to indications of an improving U.S. economy and diminished concerns about Europe’s economic stability. The S&P 500 finished January up +4.4%, while the “riskier” Nasdaq finished the month up 8.0% and the MSCI Emerging Markets Index gained 7.7%. Yes, investors are boldly embracing the “risk on” trade. 

On Wednesday, a successful debt offering from Portugal was well received, the Institute for Supply Management (ISM) reported mostly improving conditions in the manufacturing sectors, and factory activity increased in China and Germany—although overall activity in the euro-zone continued to shrink. Nevertheless, European stocks have rallied during January while bond rates have fallen.

The bulls still control the action, and sectors with the highest Sabrient Bull scores (indicating relative outperformance during particularly strong market periods) have tended to be the leaders. Among the 10 sector iShares, Basic Materials (IYM), Technology (IYW), Industrial (IYJ), and Financial (IYF) were the leaders in January. Wednesday’s market strength was led by Financials, Materials, and Industrials, which have the highest Bull scores. 

“Don’t fight the Fed” has been the slogan emboldening the bulls, along with improving conditions in the U.S. and emerging markets. But now you might expand it to say, “Don’t fight the central banks,” Read more…

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Song sung blue
Everybody knows one
Song sung blue
Every garden grows one

Me and you are subject to the blues now and then
But when you take the blues and make a song
You sing them out again
Sing ‘em out again

Song sung blue
Weeping like a willow
Song sung blue
Sleeping on my pillow…

Song Sung Blue–Neil Diamond

When should I sell a stock?  This is a very difficult question to answer.  Like Neil says, you can always take an announcement “sing it with a cry in your voice” and have a “song sung blue.”  In the case of Arrow Electronics earnings announcement today “you simply got no choice.”

Arrow Electronics, Inc. (ARW), was originally recommended for long exposure on November 4, 2010 at $30.55, and that recommendation was reiterated on February 4, 2011.  I am of the opinion that it is time to close the position in ARW with a 39.54% profit “and before you know it start to feeling good.” The key phrase that turns this earnings announcement blue is the guidance, which has me “weeping like a willow.” The mean estimate from analysts for the first quarter 2012 is $1.07, and the company guided to a range of $1.01 to $1.13 after beating the fourth quarter estimate with $1.38 vs. $1.30.  Further, analysts have revised the 5-year growth rate down to 7.4%, and at today’s closing price of $42.63, ARW costs investors a forward P/E of 8.88.  I prefer to have the ratio of growth to projected P/E much more in our favor, so my recommendation is to close ARW at the open Thursday. Read more…

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Uncertainties Cloud Market’s Progress

We still don’t know what the market wants or what it will get. The market continued inching ahead, up about +0.40% over the last 5 days, but it was down sharply this morning for a loss today.

Concerns about exposure to Greek debt are paramount in the minds of investors.  Transparency is far from where it should be, yet European leaders did agree today on a permanent rescue fund for the euro zone, and 25 out of 27 EU states supported a German-inspired pact for tighter budget discipline.

Citigroup (C) is significantly reducing compensation for its investment bankers, and Bank of America’s (BAC) rating was cut to “neutral” from “buy” by Goldman Sachs Group. Read more…

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Here’s an excerpt from second in a series of articles (read part I here) written by Daniel Sckolnik for Seeking Alpha that reviews Sabrient Systems annual ‘Baker’s Dozen’, a list of 13 top-ranked stocks that was presented during a live webcast on January 5th, 2012:

Let’s take a look at two more stocks on the list, United Rental, ranked #12, and Kronos Worldwide, which came in at #11. Ameristar Casinos was reviewed in part I.

United Rentals is the largest equipment rental company in the world, with an integrated network of more than 550 rental locations in 48 states and 10 Canadian provinces. Its customer base includes construction and industrial companies, utilities, municipalities, and homeowners.

Like Ameristar Casinos, United Rental is somewhat of a “misfit” within the Baker’s Dozen, meaning it was selected despite the major negative of heavy leverage. However, it also has a one-year earnings growth projection of over 400%, the biggest among the 13 stocks. Read more…

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“If it’s a penny for your thoughts and you put in your two cents worth, then someone, somewhere is making a penny.” – Steven Wright

As the World Economic Forum (WEF) wraps up its annual meeting in Davos, Switzerland, on Sunday, a large chunk of its agenda will be reexamined around the table of the first European Union summit of 2012, which convenes on Monday.

And, judging by Wall Street’s response last week to large chunks of chatter that emerged from the closely watched “meeting of the minds” of world leaders and key financial and business experts, the euro-zone seems to remain the central concern of investors for what is likely to be the indeterminable future.

There is no question that Wall Street is primarily in an uptrend. Dating back from late November of 2011, the Dow Jones Industrial Average (DJIA) has skyrocketed a whopping 11.5% as of market close last Friday. The steep gains hardly came in a straight and steady progression, however, as a new round of euro-jitters shook up the market mid-December. Read more…

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Entering the Debt Dimension

Excerpt from Stock World Weekly

We ended last week’s newsletter explaining why we were not betting on an announcement for more quantitative easing by the Fed, although “consensus” economists claimed to be. We argued that additional QE was unlikely, citing our friends (Bruce Krasting, Lee Adler of the Wall Street Examiner, and Jon Hilsenrath – with his direct line to Bernanke). This week, those expecting easing were disappointed; there was no mention of launching any new program for large-scale asset purchases. Read more…

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Well I just heard the news today
It seems my life is going to change
I closed my eyes, begin to pray
Then tears of joy stream down my face

With arms wide open
Under the sunlight
Welcome to this place
I’ll show you everything
With arms wide open

If I had just one wish
Only one demand
I hope he’s not like me
I hope he understands
That he can take this life
And hold it by the hand
And he can greet the world
With arms wide open…

Creed

For those of you with a sense of humor, check out Tim Hawkins’ rendition.

I promised in my last post to keep any political views to a minimum, so I will keep this part short and sweet.  “Well I just heard the news today (well actually last Thursday, but I came down with the flu after I began writing this, but I still liked the news so I left it in), It seems my life is going to change, I closed my eyes, (began) to pray, Then tears of joy stream down my face” regarding Governor Rick Perry’s “decision” to withdraw from the 2012 Republican Presidential race.  Enough said.

All of the positions we discussed last Friday closed and/or rolled as expected.  Agilent Technologies (A), Gannet Communications (GCI) and China Petroleum & Chemical Co. (SNP) have all moved on (“I hope (they) understand”) while Radware (RDWR), Xyratex (XRTX), LDK Solar (LDK), and Jabil Circuits (JBL) rolled or added options as we continued to “hold (them) by the hand.” I promised to recommend replacements to the portfolio, and so I am. Read more…

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Bulls found fresh legs on Wednesday with support from the FOMC, despite the reluctance of Greece to “play ball” with its creditors, which has been depressing investor sentiment. Everyone seems to agree that the unresolved debt crisis in Europe is the main thing holding back global economic recovery and the snorting stock market bulls. To be sure, the situation in Europe is not good.

The worry is that Greece might be too far gone to save, and then others will fall in a domino effect. To comply with the European Banking Authority’s stress tests, European banks must raise capital and deleverage their balance sheets, so they are unloading their government debt holdings—but this hinders credit and economic growth. It’s a catch-22.

Nevertheless, the “risk-on” trade continues, as emerging markets, Nasdaq, small caps, and commodities are the leaders, while U.S. Treasury bonds are lagging. Among the 10 sector iShares, Basic Materials (IYM) and Technology (IYW) have been the leaders this week—with IYW getting a big boost from Apple Inc. (AAPL) after its incredible earnings report on Tuesday. Apparently, investors believe that the U.S., Asia, and emerging markets can weather whatever storm that emanates from Europe.

The release of the FOMC Policy Statement gave stocks and gold prices a boost, while knocking down the dollar. Read more…

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Halfway through the 4th trading week of 2012, two of Sabrient’s portfolios, the Sabrient Baker’s Dozen 2012 and Earnings Busters, are clobbering their benchmark, the SPY, an ETF that tracks the S&P 500 index.

The Baker’s Dozen is up a whopping +10.17% compared to the SPY’s +3.11% YTD performance. That’s a over +7% higher than its benchmark! The Sabrient Baker’s Dozen is a basket of stocks with the strongest GARP (growth at a reasonable price) characteristics, and it is meant to be held for the entire calendar year of 2012.  You can see the Baker’s Dozen introduced in a free WebCast, or you can can download the full report free here.

Earnings Busters is up an incredible +13.16%, over 10% higher than the SPY in less than 4 weeks! EB is built by selecting 1 stock each week for 13 weeks. To GET THE NEXT EARNINGS BUSTER TOMORROW, subscribe to a Platinum membership now!

Together, these portfolios are comprised of 23 unique stocks (3 stocks overlap). Here are two stellar performers held in both portfolios:

AGCO up +19.18% YTD

STX up +20.31% YTD

Disclaimer: These portfolios are published solely for informational purposes and are not to be construed as advice or a recommendation to specific individuals. Individuals should take into account their own financial circumstances in acting on any stock selection made by Sabrient. Sabrient makes no representations that the techniques used in these reports will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.

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For better or for worse, as investors we are generally suckers for a good stock recommendation. Trouble is, we frequently end up getting suckered by that very same “sure thing.” Well, doing one’s own due diligence is a reasonable antidote for bad counsel. On the other hand, what about those rare cases when the due diligence behind the proffered equities has effectively been done? And taking it all a step further, what if there happens to be a track record to support the recommended stocks?

Well, you just might find yourself with some “portfolio-worthy” stock picks. And, in the case of Sabrient Systems Baker’s Dozen, you’d end up with a basket of stocks that have managed to outperform the benchmark S&P 500 (SPX) to the tune of 36%, 21% and 7.3%, respectively, over the last three years.

Not bad for a baker, a banker, a candlestick maker or just about anyone else, for that matter. Read more…

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Excerpts from this week’s Stock World Weekly: QE-Cating

This was a good week for the bulls. The major indexes were all up between 2.0% and 2.8%, capping the third consecutive week of gains. Investors saw some powerful signs of positive activity in the economy. For example, initial unemployment claims dropped a stunning 50k in one week. Conversely, the fact that this earnings season has seen the lowest percentage of companies beating expectations since Q3 2008 supplied some powerful ammunition for the bears, although the bulls still had it. (Earnings beats falling behind previous quarters)

We ended last week’s newsletter, “Cracks in the Facade” discussing the possibility of additional easing by the Fed, which would likely prove bullish for the markets. Quoting Phil, “It seems like a lot, but we’re back to 760 on the RUT, which was our test line going the other way last week, and we still haven’t filled the gap up from Monday’s close, about another 1% down. Let’s keep it in perspective though – we’re up from 1,200 to almost 1,300 on the S&P in less than a month. So a 20-point pullback to 1,277 would not be very bearish in a longer-term trend and, if we get volume and hold it, it’s actually a bullish confirmation… Read more…

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“Confusion is a word we have invented for an order which is not understood.” –  Henry Miller

The Dow Jones Industrial Average (DJIA) rose by almost a full percentage point on Friday, but like so many aspects of the current market, that number is somewhat misleading.

Tech leader IBM powered the Dow to its fourth winning day in a row, which left the blue-chip index up 2.4% on the week. However, with IBM being the highest-priced component within the Dow universe, its upward move, coming in at over 4%, disproportionally raised the Dow’s bottom line.

For comparison, if you take a look at the S&P 500 Index (SPX), it gained a relatively paltry 0.1% on Friday. However, the benchmark index, which offers a far more accurate read on the equity market in general, did manage to gain 2% on the week, placing it at a level not seen since late July of 2011. It now has a very minimal cushion of 1% atop the psychologically important 1,300 level, while also sitting relatively high above its own 200-day moving average. Read more…

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Where, Oh Where, Should We Put Our Money?

From the market’s perspective, the first three weeks of the year have been okay:  Eight up days, four flat days and three poor days. But aside from one-day gains of about 1% on January 3 and 18, there hasn’t been much excitement.  The S&P 500 is up about 4% for the year, which, in itself, is quite fine, but if we look at the economic data released in the past three weeks, there’s not much to write home about.

True, factory orders and the Empire ISM readings were fine, but initial jobless claims have been poor to tepid; December retail sales, poor; and housing starts just ok. Corporate earnings have been a mixed bag, but average at best. Global politics are disconcertingly volatile, and our domestic politics are a mess.

So why should we put our money in the stock market?

Well, where else can we put it?

Short-term T-Bills? Not a chance! Long-term government bonds? Are you kidding! Corporate bonds?  Maybe. Real estate? How low is low enough? Gold or silver? How high is too high?

The good news is that cash is (almost) everywhere. Of course, the Federal government doesn’t have any cash, but it can just print some more (ouch!).  A number of pension funds don’t have enough either, as we all saw last week when Eastman Kodak (EK) bit the dust. (Several months ago, our subsidiary, Gradient Analytics identified EK and a number of other firms as problematic because of their underfunded pension funds; the list is proprietary so I can’t share the names with you.) Nonetheless, many pension funds need to invest their cash more wisely so look for more funds to return to the stock market from the fixed income investments where they rushed en masse after 2008.  Read more…

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David Brown, Sabrient’s Chief Market Strategist, discusses the 2012 Baker’s Dozen on Bloomberg Radio.

Listen here.

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