Last
week’s shortened trading ended with the Dow and S&P closing at record highs
and the Russell 2000 and Nasdaq closing at 13 year highs on the back of a much
stronger than expected nonfarm payrolls report showing the US created 288,000
jobs in June. However, the Bears
will harp on the fact that consumer spending is still down because the jobs
being created are not leading to wage growth and the labor force participation
rate is at it’s lowest levels in about 40 years. This is something that I have noticed every time an economic
report comes out that indicates expansion…too many people make excuses for why
things are actually getting better.
When June auto sales came out much higher than expected, pacing to sell
almost 17 million cars this year, analysts across the board blamed the higher
number on the winter weather this year, skewing the numbers for the last few
months. When May new home sales
reached levels not seen for more than 6 years, Bears were quick to point out
that new home sales have been very inconsistent and shouldn’t be trusted. That is the biggest clue of them all
that this market is going to continue to trend higher. Until the Bears turn the corner and
finally realize that things are actually getting better and quit making excuses
for a stronger economy, there is no reason to be worried.
Back
on March 16, I recommended taking a contrarian view on copper and put a price
target of $3.30 on the industrial metal.
Thursday’s close of $3.2795 was the highest level it’s traded at since
late February. At the same time, I
recommended taking positions in Freeport MacMoran (FCX), Southern Copper (SCCO)
or the Copper ETF (JJC). If you
took my advice, you would have gains of 24%, 17.4% and 12.7%,
respectively. At this point, I
would recommend taking profits on all of these positions. I can see another 1.5% gain in copper
prices before pulling back, but there’s also too much hype about how strong that
market is, and especially how strong Freeport MacMoran has traded, essentially
since I got behind it. Just last
week, Jim Cramer did an entire segment on the technicals of the stock, calling
for it to go higher and there are more and more bullish articles being written
about Freeport. If you bought back
in March, you have just about tripled the gains of the S&P in the same time
frame, so take your gains and look for another trade.
The
next driver in this bull market kicks off this week in form of earnings. Alcoa leads the way as usual, but one
stock that I think you could buy before they report earnings and reap nice rewards
on is Citibank (C). Citibank has
become the redheaded stepchild of the banks, with one problem after another
arising. They have failed
countless stress tests as well as their most recent issues with the $400
million Banamex fraud in Mexico.
Sticking with my theme from last week, looking for broken stocks, but
not broken companies, I think Citibank is a way to get great reward, with
little risk. For banks, it’s more
important to look at price/book value more so than price/earnings, and on a
price/book value, Citibank is trading at just .72, which is cheaper than
JPMorganChase, Wells Fargo, Bank of America, Goldman Sachs and just about every
other bank out there. Not only is
Citibank incredibly cheap right now, but come earnings season, the only surprise
I see coming is to the upside. All
the negative news is already priced into the stock and expectations are so low
that even an “in-line” quarter should send the stock higher.
Looking
at the chart, the stock has formed a strong base between $46-$47 since the
beginning of February, which will act as support for the stock, come earnings
on July 14. After trading at a
52-week low of $45.18 on April 11, Citibank hasn’t traded below $46 since. In fact, that was the only second time
since April 2013 that Citibank has traded below $46. Come Monday, I would be a buyer of Citibank, which I am giving
a 12-month price target of $55, representing a 14% gain from Thursday’s
close.
Earnings
season is upon us, and I think it’s going to be a good one. The economy is improving despite the
constant bearish calls. Use those
Bears to your advantage. Once
those analysts finally realize that things actually are getting better and
change their view to bullish, that’s when you want to be cautious and start
taking profits because at that point, all the bullish news has been priced in. For now, keep on keeping on and ride
the bull market higher. For full disclosure,
I did put my money where my mouth is and bought Coach last week, as I
recommended you do the same.
My current positions: Long
Ford (F), Toll Brothers (TOL), Gilead Sciences (GILD), SunPower Corporation
(SPWR), Starbucks (SBUX), Macy’s (M), Boeing (BA), Disney (DIS), Google (GOOGL),
Facebook (FB), Coach (COH).
Jeff Lewison
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