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What The Market Wants: New Twist On Flight To Safety

 February 15, 2013 09:16 AM

Regardless of what I say, the market wants clearly wants a plan from the President and Congress so that sequestration can be avoided on March 1, 18 days from now.

Our forward-looking SectorCast predicts things won't go well—for the first time in the history of the model, the top three sectors, Consumer Cyclicals, Non-Cyclicals, and Technology, are all flight-to-safety. Last week, the market eked out a slight gain. While all style/caps were positive, only two sectors were positive on a cap-weighted basis: Consumer Cyclicals and Technology. The rest were mostly marginally negative.

It is estimated that sequestration, even if implemented half-heartedly, could lower GDP by as much as 0.7%, from estimates of 2-3% for 2013. On the positive side, in our opinion, Congressional behavior significantly improved from fall of 2012, and the President seems more cooperative towards working things out. Other than these political issues, the economics numbers and the corporate earnings reports for Q4 2012 have been better than expected. Of the S&P 500 companies that have reported, 63-64% have beat on the bottom line, and surprising, nearly the same amount have beat on top line—and that metric had been expected to be at or below 50%, the same as last quarter.

[Related -Google Inc (GOOG): Why Nest Labs Deal Is A Wakeup Call For Apple Inc.?]

So, assuming that tomorrow night's speech and the follow-up speech by the opposition do not seriously shake investors, we continue to have every reason to believe that things will continue along much as last year in the form of steady improvement

[Related -Apple Inc. (NASDAQ:AAPL): Why Gross Margins Will Expand In 2014 and Beyond?]

However, Europe is once again becoming more of an issue, and it's difficult to determine how that will play out. It's time for cautious optimism again. There are few economic reports this week, but they will likely to be of significant importance. Treasury Budget is due tomorrow before the State of Union; Jobless Claims are on Thursday; and we'll get our first look at Consumer Sentiment following tax-increases on Friday. Senator Rubio's follow-up speech will be interest as well as he seeks to establish himself as a man for the U.S. and not for any particular party. Hopefully it will encourage other leaders to be reasonable over the next two weeks and not kick the can down the road.

As usual we have stocks with excellent growth that can be picked up for a great price.

4Stock Ideas for this Market

This week, I found four highly ranked stocks from the "GARP" preset search in MyStockFinder.

Apple Inc. (AAPL)

  • Trading at 11x current earnings and 9.5x forward earnings
  • Dividend of 2.20% expected to continue
  • 19% 5-year projected EPS growth rate

CF Industries Holdings Inc. (CF)

  • Trading a 8x current and forward earnings
  • Steady earnings producer
  • Recent Positive Analyst Revisions
  • 10% 5-year projected EPS growth rate

Delek US Holdings Inc. (DK)

  • Trading at 10.5x current earnings and 9x forward earnings
  • Projected to earn $0.98 this quarter, up from -$0.07 a year ago (1500%), and $1.00 next current (27% EPS growth)
  • Recent Positive Analyst Revisions

Marathon Petroleum Corporation (MPC)

  • Trading at 8x current and forward earnings
  • Over half of analysts covering have revised estimates upward
  • 3% projected EPS growth in 2013, and 9% over the next five years


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