Even
with the S&P making new all-time highs on a daily basis, heading into
year-end there are still a number of stocks that have a lot of room to
run. Ever since crude oil traded
down to $77 the first time, I have been very bullish on energy, with my favorite
being EOG Resources. Despite crude
oil falling to multi-year lows in October, EOG was still able to put up strong
earnings, beating estimates on EPS and revenues. The company reported revenues of $5.1B, up about 45% YoY and
EPS was up 100% to $2.01/share.
EOG does most of it’s drilling in the Eagle Ford and Bakken shale, where
the company can still increase production despite lower oil prices, estimating
that FY14 production will increase 16.4% compared to earlier predictions of
14%. EOG has been able to operate
more efficiently than competitors, increasing margins and production during the
previous quarter. Management said
that oil would have to trade down to about $65/barrel for a considerable amount
of time in order for them to cut production, something that I don’t see
happening. EOG is trading at 20x
FY15 earnings, and while that’s a premium to the industry, I still think it’s a
great way to play energy going into the end of the year and beyond. EOG is still about 14.5% off all-times
this year, but is up 25% from the October lows. On Friday, EOG closed at $101.74, gapping above an upward
sloping 200-day moving average.
That’s a level that I see holding and rallying from to make new all-time
highs.
Another
sector that I really like going into next year is the red-hot housing
sector. Now, I have been bullish
this sector all year long, but these stocks have been so beaten up all year
long, that this recent rally should absolutely continue into next year. Recent earnings reports from Home Depot
and Lowes show that housing is alive and well despite the winter coming, and
secondary housing plays like Sherwin Williams and Masco have both reported very
strong earnings and forecasts.
Homebuilders, Pulte Homes and Lennar, are at all-time highs, while Toll
Brothers, and KB Homes have each rallied sharply off the October lows. The chars of each of the homebuilders
is setting up nicely for a rally into years-end, and even stocks at all-time
highs like Sherwin Williams and Lowes can be bought with confidence. What is also making me bullish on the
entire housing sector is the strength of the US economy. With unemployment ticking lower, wages
beginning to slowly pick up, oil prices staying considerably low (even
$85-$90/barrel is low), more consumers will have money to spend on buying a new
home, instead of renting or living with their parents. My favorite names in this space is Toll
Brothers if you want to be in a homebuilder and Masco if you want construction
exposure, as Masco owns names such as Delta, Behr, Duraflex, and Milgard. In short, Masco has exposure to
everything from faucets and windows, to insulation and paint. It is your ultimate housing stock.
I
did make a couple adjustments to my portfolio since I last wrote. I closed out my Microsoft call options
prior to expiration with a 97% gain.
I also went long December $44 calls in Mobileye and purchased Under Armour
early last week.
My current positions: Long
Ford (F), Gilead Sciences (GILD), Starbucks (SBUX), Macy’s (M), Google (GOOGL),
Facebook (FB), Delta Airlines (DAL), Whole Foods (WFM), Wells Fargo (WFC),
General Motors (GM), ConocoPhillips (COP), Kinder Morgan (KMI), Time Warner
(TWX), Palo Alto Networks (PANW), Twitter (TWTR), NXP Semiconductors (NXPI),
Lockheed Martin (LMT), Darden Restaurants (DRI), Celgene (CELG), long Mobileye
(MBLY) December calls, Jack In The Box (JACK), and Under Armour (UA).
Jeff Lewison
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