For Immediate Release
Chicago, IL – March 11, 2014– Zacks Equity Research highlights Huntington Ingalls Industries (HII-Free Report) as the Bull of the Day and Blue Nile (NILE-Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Motorcar Parts America (MPAA-Free Report), Datalink (DTLK-Free Report) and Westlake Chemical (WLK-Free Report).
Here is a synopsis of all five stocks:
Bull of the Day:
Earnings estimates have been soaring for Huntington Ingalls Industries (HII-Free Report) following the company ' s third straight earnings beat. It is a Zacks Rank #1 (Strong Buy) stock.
Shares of Huntington Ingalls Industries have been on a tear since the latest positive earnings surprise. But there is plenty of room for this stock to run higher given its reasonable valuation and strong growth projections.
Huntington Ingalls Industries has been designing, building, overhauling and repairing ships primarily for the U.S. Navy and the U.S. Coast Guard for more than a century. It operates in two segments: Newport News Shipbuilding (60% of revenue) and Ingalls Shipbuilding (40%). Newport News Shipbuilding produces nuclear-powered aircraft carriers, submarines, and refueling and inactivation work for the Navy ' s in-service carrier fleet. Ingalls Shipbuilding builds expeditionary warfare, surface combatants, and coast guard cutter ships and provides fleet support services.
Huntington Ingalls Industries was spun off from Northrop Grumman Corporation in 2011.
Bear of the Day:
Blue Nile (NILE-Free Report) recently reported lower-than-expected sales and earnings for its fourth quarter. And management provided weak guidance for 2014. This prompted analysts to revise their estimates significantly lower, sending the stock to a Zacks Rank #5 (Strong Sell).
Although shares of Blue Nile have sold off since the Q4 report, it still does not look like a value at 38x forward earnings. Investors should consider avoiding the stock until its earnings momentum turns around.
Blue Nile is an online retailer of diamonds and fine jewelry. It is headquartered in Seattle, Washington and has a market cap of $461 million.
Blue Nile reported disappointing fourth quarter results on February 6. Earnings per share came in at 38 cents, missing the Zacks Consensus Estimate by 4 cents. It was also slightly below EPS of 39 cents in the same quarter last year.
Net sales increased 7% to $146.0 million, well below the consensus of $153.0 million. This was driven by lower-than-expected growth in the domestic non-engagement and international segments.
Time to Buy in Spring?
Top-Down Fair Value for the S&P 500
The approach of spring has warmed up forward-looking markets in March. You didn’t need a groundhog to notice. Just look at your stocks.
At 15 times forward consensus on earnings estimates, stocks look fully valued again. Consider the average stock market P/E is 15 to 16. Apply 15 to $117 per share analytic bulls expect for the S&P 500 in 2014. That computes to fair value at 1755. At the time I wrote this, stocks were pricing well above that level. This number’s arrival would reflect deep pessimism on Federal taper unintended consequences, or more likely, a non-U.S. blow-up.
Raging bulls use $132 in earnings for 2015 and say 1980 is fair value in a short time.
Time to Buy in Spring?
Based on weekly March unemployment claims data and ISM and PMI numbers, yes. Federal non-farm payroll numbers from Dec and Jan created worry. After a two-year budget deal passed in DC, we got further onboard for a rise in U.S. stocks. DC games must stay sidelined.
Markets are robustly priced to full year 2014 -- with a more than a pinch of 2015 now.
The Fed Sees a Strengthening Recovery
According to a recent Fed Views, “Recent data continue to indicate a strengthening recovery.
“Fourth-quarter real GDP growth suggested a little less momentum than we expected in domestic demand. We expect a further modest dip in GDP growth in the current quarter, reflecting two main factors. First, firms are likely to reduce their accumulation of inventories following a sizable increase in the second half of 2013. Second, weak retail sales in January suggest somewhat weaker near-term growth in consumption. Some of this weakness is likely associated with bad weather and the termination of extended unemployment benefits.
“Nevertheless, we expect more solid growth overall for 2014.”
Zacks April Sector/Industry/Company Telescope
March showed investors a fresh mix. Sector leaders are Consumer Discretionary, Info Tech, Materials, and Industrials. Overbid Health Care and Consumer Staples take a step back. This is a cyclical call. Global growth led by business spending is on. Think planes, corrugated boxes, and autos.
(1) Consumer Discretionary keeps the consumer bid alive. It is Very Attractive. Focus on Leisure and Autos/Trucks/Tires. Apparel looks good too. The Home Furnishing-Appliance upside looks to be off now.
Company to Look at: Motorcar Parts America (MPAA-Free Report)
(2) Info Tech has hot industries like Telco equipment and Computer Software-Services. This sector is Very Attractive.
Company to Look at: Datalink (DTLK-Free Report)
(3) Materials look Very Attractive now. Containers & Glass, Building Products/Construction Materials, and Chemicals industries lead. There are no Very Unattractive industries here, a first for this beaten-up sector.
Company to Look at: Westlake Chemical (WLK-Free Report)
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