Weekly Market Overview
US stocks closed near their daily highs on Monday as many traders and investors are banking on another interest rate cut by the Federal Reserve on their next meeting slated for Wednesday. The Dow Jones increased 1.5% while the Nasdaq added 1%. Many are saying that a half point cut is most likely given the Federal Reserves emergency cut early last week. Meanwhile, gold is up another 1.8% after reaching a new record high while several big companies are slated to announce earnings after hours. Overall, many are interpreting this as a turn in the markets that could signal a temporary bottom, but a lot remains to be seen...
Top 10 Stocks to Watch this Week
Fundamental Analysis
- Tyco Electronics (TEL) - After recently spinning off from Tyco this stock is down almost 10%, but is starting to catch the attention of value investors. The company is trading well below its peers with strong cash flows. It is also a victim of the spin-off effect, which has made it an even greater value to opportunistic investors. We believe that this company will outperform in the long-term.
- Capital Southwest (CSWC) - Activist investor Ned Sherwood came out with an analysis on this company showing a $200/share valuation. The only thing holding shares back are practices by the company that can easily be changed if they so desire. Unfortunately, the company seems resistant to change now, but this is definitely a stock to watch incase they change their mind.
- United Online (UNTD) - Classmates.com is one of the fastest growing social networking websites on the Internet and this company plans to spin it off real soon. Investors should keep an eye on this development as spin-offs not only represent great investment opportunities, but the social networking space is red hot with names like Facebook and Myspace in the news constantly.
- Brinks Company (BCO) - Activist hedge funds Pirate Capital and MMI Investments are still fighting the company to unlock value through a divesture of several key businesses. Given the difficult credit market, some are now questioning whether or not this is possible. However, if credit markets improve and they hedge funds are successful during the next annual meeting, this stock could soar.
- Ceridian Corp. (CEN) - This activist target has agreed to bend to the pressure of the hedge funds and is definitely a company to watch ahead of its annual meeting where it will fight to retain its incumbant board members. If Pershing Square is successful in installing its own board members, we could see significant share appreciation.
Technical Analysis
- China Finance Online (JRJC) - Intermediate-term bullish continuation wedge.
- Broadcom Corporation (BRCM) - Intermediate-term bullish continuation wedge.
- F5 Networks (FFIV) - Intermediate-term bullish continuation wedge.
- Riverbed Technology (RVBD) - Intermediate-term bullish continuation wedge.
- Alvarion Limited (ALVR) - Intermediate-term bullish continuation wedge.
Stock of the Week : Borders Group (BGP)
Biogen Idec (NDAQ: BIIB) directors may be in for a fight after billionaire activist Carl Icahn announced the nomination of three candidates to the company’s board of directors. The news comes shortly after the investor bought up millions of Biogen shares last summer, which led to a search for potential suitors in October. The company then abandoned the idea in December when no bidders emerged, which sent shares plummeting. Carl Icahn now believes that he can do better - the question is whether shareholders should believe him. (Read More)
Article of the Week : Activists Can Fail Too
Many activist investors, like Carl Icahn and Bill Ackman, are well known for taking an activist stance in their investments and producing strong returns. However, the best investors are not always perfect and following them blindly could be a bad idea. Target Corporation (NYSE: TGT) and Sears Holdings Corporation (NDAQ: SHLD) are two recent examples of how activist investors can make big bets in the wrong direction. (Read More)
Final Words
The market remains depressed and investors should be careful when investing in these climates. It is best to keep in stocks with international exposure and no credit risk.