by Mike Cintolo, editor Cabot Top Ten Trader
As the general market has heated up, we've noticed more and more "Bull
Market stocks"—brokerage, investment bank and asset management firms,
each of which directly benefit from higher stock prices and increased
trading activity—pushing to new highs.
Our favorite of the week is BlackRock (BLK),
which recently reported a great quarter. It's not going to triple, but
after a long rest period the stock is under very strong accumulation. We
also recommend Morgan Stanley (MS), another hot-topic to emerge from the financial sector.
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BlackRock might be the granddaddy of the group;
the company has an almost unbelievable $3.8 trillion of assets under
management! Obviously, that's not mom-and-pop investors, but big
institutional pension and hedge funds, as well as some very wealthy
One big driver is the firm's iShares business,
which it purchased in 2009 and has been a big hit; BlackRock's top brass
alluded to a secular shift into ETFs and more passive investments,
which plays right into iShares' hands.
Best of all, management
is committed to returning cash to shareholders—it just hiked the
dividend 12%, resulting in an annual yield just south of 3%, and
continues to buy back shares quarter after quarter; the company
repurchased about 5% of its shares last year, and has authority to buy
another 5% going forward.
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sales growth picking up, earnings growth accelerating and the potential
for better-than-expected earnings in 2013 if the market continues its
winning ways, we think BlackRock has solid upside.
peaked back in January 2010 at 244; since that time, earnings have grown
quarter after quarter, yet the stock hasn't been able to make any
That looks to be changing now, however—after bottoming
last May, the stock tightened up beautifully for a few months, and now
it's climbing steadily, punctuated by last week's solid upmove. BLK
isn't a runaway-type stock, so we think you can get in on a small
pullback in the days ahead.
company created a firestorm for investors by reporting earnings of 45
cents per share, excluding items, reversing a loss of 20 cents per share
last year. Revenue soared 37% to $7.5 billion.
Management unit was the centerpiece of the report, with revenue rising
8% on strong margins and investment banking returns bolstered by initial
public offerings and global mergers. Driving wealth management gains
was Morgan's steal-of-a-deal to acquire most of Citigroup's Smith Barney
And, while trading revenue fell short of
expectations, management emphasized a focus on future returns centering
on growing consumer strength in the U.S. economy. This optimism should
continue to support Morgan Stanley as the firm strives to improve return
"After a period of turmoil, a period of
restructuring, a period of development, we're now pivoting to a period
of growth and performance," Morgan CEO James Gorman told Bloomberg TV.
After slashing some 6,000 jobs in the past year as part of the
restructuring effort, Morgan Stanley is leaner, and more focused on
growing its bottom line than ever.
After failing to hold above
potential support near 20 in early 2012, MS shares followed the rest of
the market lower throughout the summer. Shares found a floor near 12 in
June/July, and utilized support in the region to rally back above
several key moving averages.
Following a period of consolidation
in the 16-18 region, just above its 50-day trendline, MS finally broke
out and eclipsed former resistance near 20. The recent earnings report
was icing on the cake, sending MS to fresh annual-high territory above
With some consolidation inevitable following last week's
spike, we recommend buying on dips to achieve the best entry. A loose
stop near 19 would be prudent.