Stocks finished relatively flat
last week, and after getting through more than half of earnings season, the
market has held strong. More than
75% of the companies in the S&P 500 that have reported earnings have beaten
estimates, growing about 1.5%, better than the negative earnings estimates most
analysts had expected. Wednesday’s
retail sales figures came in sharply higher than analyst estimates, rising 6%,
led by Costco, L Brands and Gap stores.
That was a good sign for stocks like Macy’s and Michael Kors, so
hopefully you took advantage of the recent drop and bought either of those
stocks on Monday.
This will be a light week of
economic data, with the big number coming on Friday in the form of new housing
starts. Housing has been a weak
sector this year, starting with the bad winter, higher interest rates and a
still-strong rental market. Being
long Toll Brothers, I still believe in the homebuilders and housing. I think the weather had a huge impact
on the homebuilders and there’s so much negative sentiment in housing that the
new housing starts should be a pleasant upside surprise. If you are looking for the best way to
get exposure in the housing market, but don’t want to limit yourself to just
homebuilders, my favorite stock in the sector is Home Depot (HD) because you
will get exposure to home building (the supplies that the builders need) and
existing homes (remodeling and upkeep).
Home Depot closed at $77.71 on Friday, one penny above the 50% Fibonacci
retracement from the 52-week low to high.
I would look to begin buying 50% of your position in Home Depot on
Monday, and would add to the position if the stock gets back down to $74.80,
which is the 23.6% retracement.
Home Depot pays a 2.42% dividend and what I like most about the stock is
the improving and growing online business. If you purchase an item online, you have the option of
picking it up in-store, which could ultimately lead to increased store
sales. During a recent comparison,
Home Depot prices are right in line with what you can get on Amazon, reducing
online competition. Home Depot is
the ultimate housing stock and if you believe in the long-term strength of the
housing market, then you should be in Home Depot.
Year-to-date, coffee prices are up
about 65%, but in the last 2.5 weeks, the soaring commodity has pulled back
about 15%, and I think they could be headed back down another 15%. The reason for the rally this year is
due to a Brazilian draught, causing a severe shortage in coffee beans. The higher coffee prices have helped
lead to a drop in stocks like Starbucks and Dunkin Brands. However, I think the selling based on
higher coffee bean prices has been unfounded. On it’s most recent earnings call, Starbucks CEO Howard
Schulz was adamant that they would not raise prices because they have hedged
their coffee bets for years in advance.
With businesses not buying coffee beans at these record prices, the
demand isn’t there, which will quickly even out the lack of supply, stabilizing
prices. I would use the recent
sell-off in Starbucks and Dunkin Brands to start building positions. I favor Starbucks over Dunkin because
of Starbucks’ global brand strength, diversification of products (especially
with the growth potential of Teavana) and most importantly, a red-hot mobile
payment system. Starbucks recently
reported a record quarter of revenues, but what was the most important part of
their earnings conference call, was that Howard Schultz said that they are
considering licensing out their mobile payment technology, which has
contributed to a big increase in sales.
That will add an additional income stream at no cost. Starbucks closed on Friday at $70.29,
just above the 38.2% Fibonacci retracement. I recommend buying Starbucks on Monday and if you can get a
sell-off closer to $67, then I would recommend picking up more at that level as
well.
With very little US economic data
being released this week, a lot of focus will be back on what’s happening in
Ukraine. Don’t be scared out of
the market if stocks sell off on Ukraine news, but instead use the opportunity
to buy some of the stocks that I have been mentioning over the last few
months. As long as you are a
long-term investor, you should welcome any pullbacks.
My current positions: Long
Ford (F), Toll Brothers (TOL), Gilead Sciences (GILD), SunPower Corporation
(SPWR), Starbucks (SBUX), Macy’s (M), Southwest Airlines (LUV), Boeing (BA), Disney
(DIS), Google (GOOGL), Nike (NKE), long COPPER.
Jeff Lewison
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