5 stocks to watch for next week
JPMorgan and Blackrock are to report Q4 earnings. Housing market and retail sales data are set to be released. Discount retailers feel pain from payroll tax hike.
1) JP Morgan Chase reports Q4 results
What's happening: JP Morgan (JPM) ended 2012 on a high note. Despite all of the doomsday headlines about the fiscal cliff, the financial sector as a whole performed well in 2012. JPM was not the strongest-performing financial stock in 2012, but it still had a great year, appreciating 36.4%. The stock saw a little bit of selling pressure towards the end of the year as investors showed concerns of the looming fiscal cliff, but buyers immediately returned to the stock after a deal was reached and have pushed shares up 4% in the first two weeks of the year. The company will report fourth quarter results on January 16, with analysts expecting earnings of $1.21 a share, up from $0.90 during the same period last year.
Technical analysis: JPM was recently trading at $45.47, down $1.02 from its 12-month high and $14.64 above its 12-month low. Technical indicators for WMT are bullish and the stock is in a weak upward trend. The stock has recently seen support above $44. Of the 28 analysts who cover the stock 18 rate it a "strong buy," three rate it a "buy," six rate it a "hold," and one rates it a "sell. The stock receives Standard & Poor's 4 STARS "Buy" ranking.
Analyst's thoughts: Even with the strong gains that made in recent months, I believe there is still plenty of upside left in the stock It currently has a very attractive price-to-earnings ratio of just 9.6. It is a widely-diversified bank and with so many different segments it has a great deal of protection against weakness in any one. It has become the leader in global brokerage as a result of its acquisition of Bear Stearns and it pays out a 2.6% annual dividend yield. All of these features make the stock very attractive among financials and I believe we will see more upside through 2013.
2) BlackRock reports 4Q results
What's happening: BlackRock (BLK) has moved strongly higher since the summer, and shows no signs of slowing down. The company recently announced that it will purchase the European ETF business of Credit Suisse (CS) but did not disclose the terms of the deal. Even before the acquisition, BlackRock had a dominant position in the European ETF market, controlling approximately 42% of the $331 billion market. The company will be reporting its fourth quarter results on January 17, with analysts expecting earnings of $3.68 per share, up from $3.06 during the same period last year.
Technical analysis: BLK was recently trading at $214.82, down $4.04 from its 12-month high and $54.57 above its 12-month low. Technical indicators for BLK are bullish and the stock is in a strong upward trend. The stock has support above $205. Of the 18 analysts who cover the stock eight rate it a "strong buy," three rate it a "buy," six rate it a "hold" and one rates it a "sell." The stock receives Standard & Poor's 3 STARS "Hold" ranking.
Analyst's thoughts: BlackRock continues to impress. The company is still growing despite its already impressive size and we expect to see its acquisition of Credit Suisse's European ETF business to add value. While the ETF business is generally low margin, it is highly profitable when done in scale and the Credit Suisse acquisition will consolidate BlackRock's iShares unit. I expect to see the stock continue its impressive run as of late into the first half of 2013, but it is facing a tough barrier at the $220 level. A strong earnings report could accelerate the stock above $220, but if there is any disappointing news we could easily see the stock drop down closer to $200. If this is the case, I would use the selling as a buying opportunity to get into the stock.
3) Discount retailers feel the pinch of expired tax cuts
What's happening: Dollar Tree (DLTR), along with other companies in the discount retail industry, has struggled in recent weeks as investors speculate that consumer spending will decrease due to higher taxes. Dollar Tree stock has been trending lower since the middle of the summer, with investors showing more confidence in its competitors Dollar General (DG) and Family Dollar (FDO). The weakness DLTR experienced during the latter part of 2012 has extended into the current year, with the stock already down 6% since the start of the new year.
Technical analysis: DLTR was recently trading at $38.18, down $18.64 from its 12-month high and just $1.06 above its 12-month low. Technical indicators for DLTR are bearish and the stock is showing signs of a possible trend reversal. The stock has recently seen support above $38.00 and resistance below $41.10. Of the 19 analysts who cover the stock eight rate it a "strong buy," one rates it a "buy" and ten rate it a "hold." The stock receives Standard & Poor's 3 STARS "Hold" ranking.
Analyst's thoughts: Despite the stock trading so close to its 52 week low, I believe there is still more downside. The recent 2% jump in the payroll tax is going to be felt more by lower-income households and these are exactly the customers that Dollar Tree needs in order to thrive. There is the potential that the higher tax will force more consumers to downmarket discount retailers, but even if this is the case it appears as though Dollar Tree has been unable to compete against others in the industry. Discount stores in general have been strong, but even during their time of strength Dollar Tree underperformed and I see little reason to believe the company will be able to reverse this in the near future.
4) December retail sales numbers due Jan 15
What's happening: After holding steady for the summer and fall of 2012, Sears Holdings (SHLD) has struggled since the start of the holiday shopping season. Several retailers have reported that December sales were better than expected, but overall the holiday season was disappointing and while Sears does not report monthly sales numbers, it was expected to be one of the worst performing retailers. The company is in the midst of a major restructuring, but so far we have not seen many positive results. It also recently announced that its Chairman of the Board, Edward Lampert will assume the role of CEO as of February 2. The stock is down since the start of the year despite most securities advancing in that period.
Technical analysis: SHLD was recently trading at $40.77, down $45.13 from its 12-month high and $10.23 above its 12-month low. Technical indicators for SHLD are bearish and the stock is in a strong downward trend. The stock has recently seen support above $39.10 and resistance below $43.70. The stock receives Standard & Poor's 3 STARS "Hold" ranking.
Analyst's thoughts: A positive December retail sales report could help give Sears a much-needed boost, but the long-term prospects for the stock remain weak. Sears is having a hard time driving traffic to its stores, and I do not believe this is likely to change. Since combining Sears and K-Mart in 2005, the company has failed to compete against rivals Wal-Mart (WMT) and Target (TGT), which have taken over the retail industry. In addition, K-Mart has also been losing customers to discount stores in recent years. Sears still has a strong tool and appliance business, but the overall situation is not good and likely to get worse in 2013.
5) Housing market index due Jan 16
What's happening: KB Home (KBH) is coming off a strong second 2012. Despite a short period of weakness in the early part of summer, the stock was strong the rest of the year and has continued its strength in the beginning of this year, having already gained more than 4% in 2013. There have been many positive signs from the housing market lately, with home prices rising and buyers coming back into the market. Single-family home sales in November reached their highest levels in two-and-a-half years. All of the positive news has led to big stock gains for housing stocks and KB Home has been no exception.
Technical analysis: KBH was recently trading at $16.48, trading just below its 52 week high and up $10.02 from its 12-month low. Technical indicators for KBH are bullish with the stock showing signs of a possible trend reversal. The stock has recently seen support above $16.00 and resistance below $17.00. Of the 16 analysts who cover the stock two rate it a "strong buy," one rates it a "buy," nine rate it a "hold," one rates it a "sell" and three rate it a "strong sell." The stock receives Standard & Poor's 2 STARS "Sell" ranking.
Analyst's thoughts: With the rise in home prices and the level of home sales that have been reported, I expect to see a strong reading for the housing market index. Homebuilders have been increasingly bullish in recent months and I expect that to show in the index. If we do get a positive reading I expect to see more gains across the board for homebuilders, with KBH joining in with the bulls. Overall, the housing market seems to be recovering nicely and I expect to see strength continue in the sector throughout 2013.
*Annualized returns provided for comparison purposes only
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At the time of writing, Mr. Fowlkes does not have direct ownership in any of the other stocks mentioned.
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Stocks drift lower and bonds are hit as investors await the Fed. Prepare for higher volatility this week.
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