STZ: Constellation Brands looks interesting but technically weak
Peter Lynch wrote more than 20 years ago that investors should buy the stocks of companies that make products they like. Last night, we got a taste of some pretty nice Mondavi wines made by Constellation Brands (STZ) at an American Institute of Wine and Food party, and a financial advisor jovially recommended, “Buy the stock.” Lynch is right if the stock’s going up and looks good technically and fundamentally. But it looks awfully early to be barreling into STZ even though it looks undervalued in some ways.
Interestingly, only a couple of the wine snobs at the Opus restaurant in Littleton, CO, had tasted Mondavi wines recently, and we were pretty pleasantly surprised by the wines served with an incredible multi-course gourmet meal created to replicate the menu featured on Julia Child’s first TV show back in about 1960.
But this morning reality sets in. Technicallly, the stock’s charts are very weak with the point and figure charts pointing to a $12 price, down from this morning’s $20.67, which is up about 3% from Friday’s close. Click on this chart to see daily, weekly and point and figure charts.
Then look at what’s been published on Seeking Alpha over the last year, starting with this bearish comment by managers of the Oak Value Fund:
Health care stocks among the weakest
The health care sector isn’t looking very hot, notes Bespoke Investments.
Stocks aren’t cheap; earnings forecasts are inflated; PEs are not low
Stock touts frequently appear on CNBC advising viewers to buy stocks in a bear market because price earnings ratios are down from recent highs and, for many stocks, they are historically low. Don’t listen to them. When somebody says buy a stock because the PE is low, you know they are simply touts, not analysts, and they have no credibility. Turley Muller over at Financial Alchemist makes this point very well. Every investor should read his piece and remember it.
EBAY: Good time to buy eBay leaps?
Daily charts on eBay (EBAY) may be hinting that the stock is bottoming out, presenting a buying opportunity for bottom fishers and buyers of long term options, or LEAPS.
But those whose rules prevent them from buying until we’re out of our bear market and until weekly charts and daily charts say buy may need to be a bit more patient.
Technical indicators on EBAY’s daily charts are giving buy signals. The weekly charts are still bearish. And the monthly charts turned bearish a couple of months ago. Point and figure charts suggest the stock is headed lower to about $21.
What’s interesting is that EBAY’s options look cheap. Implied volatility of 0.392 is way below historical volatility of 0.671. And both implied and historical volatility are below their 12- and 24-month highs, although they look high compared with some other stocks.
So traders who are at all optimistic that the bear market will end during the next 12 months and that eBay’s stock will recover during the next 12 months might want to look at the EBAY Jan 2010 35 calls, which are trading for about $3.40 a share. That’s about 12.5% of the current stock price of $27.24. Thus, call buyers are speculating that the stock is worth more than $38.40 a share, and there is a 55% probability that the stock will touch that price before the options expire.
The trick, of course, is to manage losses. Where do you put the stop loss? A 8% drop in the stock price is $2.18 per share, or 64% of the option price. Since options are volatile, it often pays to let an option trade lose more than you would let a stock drop from the buy point before you’d sell it. If the stock drops with the overall market, be more patient. If it drops on bad EBAY news, I’d cut my losses as soon as possible.
Leaps options markets are thinly traded, which makes it difficult to take profits and to cut losses at the prices you want. EBAY’s Jan. 2010 35 calls are relatively liquid with an open interest of 2,098 contracts, but only traded two contracts Wednesday and the bid of 2.80 is pretty far from the offer of 3.40. Typically, you give the market maker two thirds of the spread, which means you’d try to buy at $3.20.
If you’re a bear on EBAY, the EBAY Jan 2010 25 puts are $3.60 bid, $4.00 offered with an open interest of 2,275 contracts but virtually no trades nor liquidity. This means put buyers think the stock is going to about $21, or where the point and figure charts say they’re headed.
Ebay charts are here.
I don’t have a position in EBAY, and I’m not a professional investment advisor. I accept no responsibility for how you trade. Do your own research before trading.
STJ: St. Jude Medical looks like a hold for now
St. Jude Medical (STJ) looks like a potentially strong stock over the next 12 to 18 months, and several services have buy ratings on the medical devices maker‚Äôs stock. Options traders appear optimistic.
But there are detractors, too, who are worried that the company is overly optimistic about its organic growth prospects over the next five years. And they‚Äôre saying the chances the company will be an acquisition target anytime soon are pretty small.
Technically, STJ is one of the strongest
You may not want to replace your Blackberry with a Palm Treo
Having suffered two Blackberry server outages, some small business owners may be looking at alternatives, including PALM’s Treo, as noted in a previous post.
Beware. PalmInfoCenter.com reports customer satisfaction with PALM’s phones is horrible while satisfaction with the Apple iPhone is unbelievable.
And I’ve got two years to go on my Treo contract? Sigh.
Hat tip to Daringfireball.net.
How would Microsoft acquisition of Yahoo affect small businesses?
Microsoft is in the process of of acquiring Yahoo.
Owners and managers of small businesses, however, are asking other questions. (click on head)
Small Business • Stocks • Technology • Read More
Bottom fishers looking at Citigroup, Pfizer as dogs of the Dow
A private money manager, Parker Hills, is watching two depressed, high-yielding stocks, Citigroup (C) and Pfizer (PFE), but he’s not ready to buy, yet. He sees them as options plays once the market shows signs of recovery.
At this point, the market is looking very weak and could just as easily go 5% to 10% lower as rally during the next few months.
Wachovia director is doing some serious buying; taken by investors as a good sign
Todd Sullivan writes at SeekingAlpha.com that one of Wachovia’s (WB) directors has become the company’s third largest individual shareholder with some serious buying. This is considered an important vote of confidence in the bank at a time when investors aren’t quite sure about the financial conditions of the major banks.
Speculators are looking for banks to buy; 5 reasons to buy Capitol Bancorp
Capitol Bancorp Ltd. (CBC), a Michigan-based owner of 57 banks around the country, looks attractive to George Spritzer. He outlines his five reasons for buying the stock over at SeekingAlpha.com.
What he likes is that Capitol has little exposure to subprime loans and the beaten-down stock looks like it could rally soon.
Investors use several screeners, charting services to find stocks
Picking stocks is time consuming and an inexact art. The Internet makes finding stocks a lot easier than in the old days when investors had to depend on their brokers, newspapers, market letters, magazines and tips from friends.
You can spend about $1,300 a year on the DailyGraphs service at www.investors.com. It’s wonderful and designed to exploit proprietary data, but it only works with Windows. I’ve spent the last week playing with it, and I’ve decided I don’t need it at the moment. I can obtain most of the data offered elsewhere, including from my online subscrpition to Investor’s Business Daily, which also is at www.investors.com.
So here are the sites that make sense to me at the moment:
Stocks • Financial Media • Financial Web Sites • Read More
Housing: Markets with most aggressive bank home loans are most vulnerable to price declines
Housing markets where banks and other mortgage lenders have been the most aggressive in recent years are the most vulnerable to hard landings as their local markets’ bubbles burst, but three real estate economists who discuss the market on wsj.com don’t seem to think there will be a hard landing in the national housing market.
Some 10% of workers are in housing related industries, which means a decline in home construction affects millions of people.
PDX: Pediatrix Medical loses new CEO, regains predecessor-founder
Pediatrix Medical Group’s CEO, Khris Bratberg, quit after only four months on the job and was replaced by his predecessor, the company’s chairman and founder, Roger Medel. The $465 million company provides neonatologists and perinatologists to hospitals.
Healthcare Providers • Stocks • Stocks Medical • Read More