Last Friday, the market’s remarkable ride continued as the Dow, S&P 500, and the NASDAQ all reached new all-time high points.  In fact, the Dow and the S&P 500 are up for the sixth straight week.

The market breadth was impressive:

• NASDAQ: 1,757 winners against 1,141 losers and 262 new highs versus 43 new lows
• NYSE: 1,778 winners and 1,124 losers, while 253 stocks hit new highs and only 40 new lows

Big Theme

Bottom-fishing stocks slammed on disappointing financial results continues to be the emerging theme this earnings season. On Friday, it was General Electric (GE), which missed Wall Street consensus by a country mile and opened under a fair amount of pressure but climbed into the black into the closing bell. 

The stock is still in a beauty of a down channel and needs to close above $25.00 to reverse the trend.

Winning Sectors

Earlier in the week, I pointed out Financials saw big breakouts from key names such as Goldman Sachs (GS) and Morgan Stanley (MS). The sector hit a ten-year high. To retest its all-time high, the sector needs to rally another 16%.

Industrials were led by Dover Corp (DOV).  When my son worked for me this summer, I recommended the stock, and now he tells me he sees the name in every elevator he enters.

Materials were winners again with a name I have mentioned a lot - Martin Marietta Materials (MLM). 

As jaw-dropping as the rally has been, investors and would-be investors need the fundamental underpinnings that justify the rally.  The best-case study for this is Caterpillar (CAT).

Shares of the earth-moving equipment maker are up 42% this year, mostly since May when Merrill Lynch put a buy rating on the stock as it sighted a major ramp in its mining business. 

There have been several rating increases since consensus earnings for next year have soared to $5.41 to $6.69 or 24% in the last three months. 

Even that might be too low as an upgrade from UBS. Last month, UBS cited the reacceleration of the U.S. construction industry for raising its target on the stock to $140 from $116, and they are seeing earnings of $7.50, which is significantly above consensus.

The point I’m making is that the market is more than potential tax cuts. Just because a stock or market is higher, it doesn’t mean it’s not justified or even undervalued. 

This morning CAT released September Sales Data

Total Machines (September 2017 vs August 2017 vs September 2016)

• Asia Pacific +43% vs+44% vs +3%
• EAME: +14% vs +8% versus -17%
• Latin America: +6% vs +11% vs -23%
• North America: +2% vs +1% vs -23%
• World: +13% vs +11% vs -18%

Total Energy & Transportation (September 2017 vs August 2017)

• Power Gen -1% vs -5% vs -26%
• Industrial +29% vs +25% vs -28%
• Transportation +5% vs -2% vs -44%
• Oil and gas +1% vs -11% vs -15%

Finding cheap stocks is hard, but there are stocks worth owning if you want to ride the wave of an economic resurgence - and I know you do, and here’s how.

This week, we’ll learn more about the economy and whether valuations are justified with a slew of high-profile earnings:

• (CAT): Caterpillar
• (GM): General Motors
• (MCD): McDonald’s
• (LMT): Lockheed Martin
• (T): AT&T
• (KO): The Coca-Cola Company
• (V): Visa
• (BA): Boeing
• (F): Ford Motor Company
• (CMCSA): Comcast
• (K): Kellogg Company
• (AMZN): Amazon
• (GOOGL): Google
• (UPS): United Parcel Service
• (XOM): ExxonMobil
• (CVX): Chevron Corp

Buckle up, don’t panic, and let’s make money!

Today’s Session

Today’s session should edge higher at the open with money re-rotating back into tech at the start.  We are not forcing the issue, but I’m very excited with biggest news this morning as earnings beat at Seagate (STX), where we should see early pressure in shorts. 

 

 

Comments

Charles, I think you are the only person on television who knows how to pronounce the word "Niger" correctly. Al M. on 10/23/2017 12:09:29 PM

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