7 conglomerates to trade in earnings season

This sector is less overvalued than most, and here are seven 'buy and trade' candidates.

By TheStreet Staff Jan 8, 2013 1:08PM

thestreet logoArrow Up Photodisc PhotolibraryBy Richard Suttmeier

Today I am profiling seven stocks in the multi-sector conglomerates sector that investors should consider as "buy and trade" candidates in 2013. If you are already long any of these stocks you should consider shifting from that old-fashioned "buy and hold" investment strategy to a "buy and trade" strategy to take advantage of up and down volatility that we will likely experience during earnings season.

It's not a question of market timing; it's the idea of adding to long positions on market weakness to a value level and to reduce long positions on strength to a risky level.

The multi-sector conglomerates sector is 3.6% overvalued and there are 13 of 16 sectors that are more overvalued as we enter the earnings season for fourth-quarter 2012 results. The seven companies I am profiling today report their earnings between Jan. 18 and Feb. 5, so we are on the alert for upgrades and downgrades between now and then.

I will show the current earnings per share estimates from Wall Street and then compare these numbers to more current estimates during the weeks these companies report.

All seven of these stocks are trading around their fair value prices between 6.1% undervalued and 7.8% overvalued and five of seven have "buy" ratings according to www.ValuEngine.com. One stock has been downgraded to "hold" from "buy" this morning.

All seven have had solid performances over the last 12 months with gains between 17.2% and 38.5%. They are all expected to be higher 12 months from now but only by 3.5% to 7.0%.

The 12-month trailing price-to-earnings ratios are reasonable between 11.5 and 18.5. All are above their 200-day simple moving averages so there is risk of a reversion to the mean in 2013.

 

conglomerate charty

Reading the table
OV/UN Valued: The stocks with a red number are undervalued by this percentage. Those with a black number are overvalued by that percentage according to ValuEngine.

VE Rating: A "1-Engine" rating is a Strong Sell, a "2-Engine" rating is a sell, a "3-Engine" rating is a hold, a "4-Engine" rating is a buy and a "5-Engine" rating is a strong buy.

Last 12-Month Return (%): Stocks with a red number declined by that percentage over the last 12 months. Stocks with a Black number increased by that percentage.

Forecast 1-Year Return: Stocks with a red number are projected to decline by that percentage over the next 12 months. Stocks with a black number are projected to move higher by that percentage over the next 12 months.

Value Level: The price at which to enter a GTC Limit Order to buy on weakness. The letters mean; W-Weekly, M-Monthly, Q-Quarterly, S-Semiannual and A- Annual.

Pivot: A level between a value level and risky level that should be a magnet during the timeframe noted.

Risky Level: The price at which to enter a GTC Limit Order to sell on strength.

Danaher (DHR) ($58.09) is expected to earn 83 cents per share on Feb. 5. DHR set a multi-year high on Monday at $59.87 and the daily chart profile is overbought. The weekly chart profile is positive with the five-week modified moving average at $55.64. My monthly value level is $53.13 with a quarterly pivot at $57.03 and annual risky level at $65.67.

General Electric (GE) ($21.13) is expected to earn 43 cents per share on Jan. 18, and has been downgraded to hold from buy this morning. GE set a multi-year high at $23.18 on Oct 5. The daily and weekly charts are neutral with the stock above the five-week MMA at $21.11. My semiannual value level is $19.17 with an annual pivot at $21.09 with monthly risky level at $22.26.

Honeywell (HON) ($66.36) is expected to earn $1.08 per share on Jan. 25. HON set a multi-year high at $66.80 on Monday. The daily chart is overbought with a positive weekly chart and the five-week MMA at $63.57. My quarterly value level is $62.65 with an annual pivot at $64.71 and semiannual risky level at $69.27.

3M Company (MMM) ($95.49) is expected to earn $1.41 per share on Jan 24. MMM set a 52-week high at $95.73 on Monday. The daily and weekly charts are positive with the stock above the five-week MMA at $92.91. My monthly value level is $91.64 with a weekly pivot at $95.44 and semiannual risky level at $111.34.

Textron (TXT) ($26.40) is expected to earn 58 cents per share on Jan. 23. TXT set a multi-year high at $29.18 on April 4. The daily and weekly charts are positive with the stock above the five-week MMA at $25.04. My quarterly value level is $24.27 with a semiannual risky level at $27.38.

Tyco International (TYC) ($29.82) is expected to earn 39 cents per share on Feb. 5. TYC set a multi-year high at $30.58 on Jan 3. The daily and weekly charts are positive with the five-week MMA at $28.85. My weekly value level is $28.65 with a monthly pivot at $29.94 and annual risky level at $31.56.

United Technologies (UTX) ($84.57) is expected to earn $1.02 per share on Jan. 23. UTX lags its multi-year at $91.83 set on July 7, 2011. The daily and weekly charts are positive with the five-week MMA at $81.63. My quarterly value level is $80.70 with an annual risky level at $88.84.

At the time of publication, the author held no positions in any of the stocks mentioned.


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