My Own Analyst

Weekend Update - Last Play of the 3rd Quarter

One more day to go, and we are into the final quarter of the year.  Last week, I pointed to a funky chart with lots of gaps and islands, and we retraced to fill one of those gaps.  I don't see the weak market as an omen of bad things to come - looked more technical to me.  There really isn't a lot going on in terms of other signals, as interest rates have come back down a little and the dollar is stable.  It seems like international stock markets are doing ok.  There's no change in the economic outlook.  Bottom-line:  Expect the rally to push on a little more.

Looking at the watchlist ( Download Watchlist092713 ), just 36 stocks closed above the 10dma.  Note that I removed BWA and MAKO, adding BGFV and LAD.  LAD is a great company (car dealer in non-competitive locations for the most part), but it's very expensive.  Stocks moving more than 10%:  Just OUTR, which bounced back.  Black 1s now number 13.  Oversold names:  CAG at -2.95, with moderately oversold names including TITN, CPRT, ISRG, SWI, ANV, IRG, MAT, NEM MW, HAYN, OUTR and INT all between -1.70 and -1.05.  On my "prospects", some moderately oversold names include CTRX, AEO, and AGN.  If you are looking for a bearish sign, there is now only one non-model stock on my watchlist that offers 35% or more to my one-year target (ANV).  This is also probably a sign that I need to find some new potential ideas.

Here are the stocks in the models ( Download Positionwatch092013 )

CPRT Reports

This could be a buy entry...

 

The company missed big, but this is due to acquisition costs from what I can tell.  Second, they ruled out REIT conversion.  

Stock is offered at 30.50, down more than 10%.  I think it should be >32.  My one-year target is 40 based on 20PE.  

Treasure...

CPRT Reports

This could be a buy entry...

 

The company missed big, but this is due to acquisition costs from what I can tell.  Second, they ruled out REIT conversion.  

Stock is offered at 30.50, down more than 10%.  I think it should be >32.  My one-year target is 40 based on 20PE.  

Treasure...

GS Upgrades RMD to Buy

Nice chart, strong company, reasonable valuation (in CG/B) - just raised target to 64 a year out (20PE plus cash)

Upgrades and Downgrades

Baird upgrades CPRT - I like the chart and the valuation is alright

ML initiates on 3-D printing - SSYS 116 tgt and DDD 65

IRG downgraded by Keybanc - I like this one near 15

ZMH upgraded by RBC - seems ok, not my favorite

WAG - MS upgrades to buy...  Missed a good trade but not a huge fan at 55

Remember Catalyst Health?  It is now Catamaran (CTRX), and MS downgraded it.  I am thinking about adding it back to the watchlist and like it here.

Weekend Update - Fed Green Light Edition

I am keeping it short on the intro.  I shared a chart on Marketfy by email that you should have seen.  If not, here it is:

This chart is a little cautious to me, but nothing that makes me want to get too negative.  I wouldn't be surprised to see some back-filling.  The upside is becoming limited, and I do expect some selling in Q4.  After a lot of frustration waiting for the big pullback that finally hit in June, I am in no hurry to fade the market for now.

Looking at stocks on the watchlist ( Download Watchlist092013 ), the only stock to move by 10% or more was OUTR, which was crushed following a big pre-announcement.  It's -1.93 on the price momentum indicator.  CAG is -2.68.  Others between -1 and -2 include ISRG, TITN, MW, FL, ANV, NEM, INT and SWI.  On the "prospects", CTRX, AEO, BJRI and URBN look interesting and moderately oversold.

72 stocks closed above the 10dma, which is no out of balance given the rallying market.  The black 1s still number 14, which is too high.

As far as stocks offering 35% or more, it's the same list:  ANV, URI and OUTR.  I actually raised my target on URI slightly and really like it.  I have been hoping to see some strength out of TITN to trade - not happening.  On OUTR, I cut the target A LOT. It's now 12PE, and this is 65.  My confidence level isn't that great, so I will watch it now (42.50-45 looks like the buy zone).  I made a series of small target adjustments across my watchlist as well.

Looking at the holdings in the models ( Download Positionwatch092013 ), again, I made some marginal changes in targets.  We have PBI pretty overbought, and, while I like the story long-term, I am removing it from Top 20.

SWI Downgraded by GS

GS cut SWI to Sell.  More often than not, I see GS downgrades as buy signals...

Income Idea

FSC is a BDC that I like - down big on a large secondary offering. It's usually a good entry to buy on these offerings when the stock is near the NAV, which is the case ($9.90)

Morning View

You probably got my notification yesterday as the Fed's surprise move was disseminated, and I hope it was as clear as it was succinct.  Green light.  I have been open to a rallying market, and there is no reason not to expect this to hold, at least for technical reasons.  We aren't really overbought, nor are we extended.  We are 4 1/2 years into the bull market, so this is something to ponder.  This is the second straight year of a super-rare occurrence:  The low of the year exceeded the previous year's close (barring some sort of freakish collapse in the next 15 weeks, of course).  I continue to think we grind into October or maybe even as late as options expiration in November, and I see 1800 as the likely high-end of the move before a correction.  I don't have a good read with my crystal ball, though, so I will be adjusting my thinking in the future as I see something that says not to expect more of the same. 

CAG reported - they had already pre-announced.  APOG missed pretty badly after a string of good reports.  The stock has been a little ahead of itself. It's no bargain at the level I expect to hold (25-26).  Solid story though...

URI touted

I got my client into URI and continue to monitor for addition to Top 20.  They were touted at a conference for value investors today.  Here is a summary:

 

United Rentals, Inc. (NYSE:URI) – $6 billion market cap, largest equipment rental company in the world. Founded in 1997, it was built as a roll-up in a highly fragmented industry. Made a transformative acquisition of the $2 player in the industry for $4.2 billion in April 2012.

Sees it as a pure play on the North American construction/industrial market.

[2:40pm] Cyclical trends pointing up as equipment rentals track U.S. construction spending. Secular trends could also provide a tailwind as low visibility/uncertain economic recovery are creating a secular shift towards renting versus buying equipment.

[2:48pm] Rental penetration rates steadily increasing since the introduction of the equipment rental industry. Significant operating leverage should provide a boost to earnings power.

Acquisition of #2 player RSC Holdings Inc. (NYSE:RRR) provides synergies around $230-250 million. Next largest player becomes Hertz Global Holdings, Inc. (NYSE:HTZ)’ equipment rental business. RSC acquisition also provides mix shift to higher margin and more stable customers.

[2:53pm] Free cash flow will be used to pay down debt in the near term but returning capital to shareholders will be reviewed at appropriate levels of leverage. Currently trades at 5.6x EV/EBITDA but Marcato sees upside of $96 per share which leads to upside potential of 72% from current levels.