Friday, July 31, 2009

End of Week Wrap-up/Look Ahead

The market has paused a bit, but still has plenty of strength as the days normally reserved for pullbacks are finding their way into positive territory. We have some interesting earnings reports coming up next week as the market shifts from large-cap names to medium and smallish companies. Smaller companies tend to not move the market as much as they aren't weighted as heavily in the major indices. But, earnings are especially volatile for the stocks themselves.

I'll be making a decision to buy on a couple of companies after I see what they report...

RHI Entertainment (RHIE) will be reporting Wednesday. I'm hoping actually for a weak number like reported last quarter. The market over-reacted and sold that stock off down into the low 1's. Their businesses is somewhat seasonal and the value is in their backlog. I've been following this for awhile and again may jump in post-earnings.

Same deal with Fuel Systems Solutions (FSYS). You could look back when I first started discussing the stock, it was around 18/share. Its poised to close today around 25. Although I like the fundamentals and where the whole fuel conversion/natural gas vehicle complex is going, I'm going to need to see how they handled the previous quarter, and their outlook for the rest of the year. I'm willing to pay a little extra to know those details as there is plenty more upside if they're on the right track.

There are a few other names as well, and I'll be writing about them next week. Market wise, I'm still skeptical of this rally. There are a lot of people jumping in, and although I have some long exposure, I still have plenty of cash. Earnings can look good for a quarter or two due to cost cutting, but you can't replace the revenue, and eventually it will hurt earnings. Its also hurting the economy in a big way because it contributes to unemployment, and thus hurts retailers, etc. Its a cycle that eventually catches up to us. There is a lot of cheap money out there, and the government can dole out more of it to prop up some aspects, but reality is what it is. I see value in a lot of stocks, but its the overvalued stocks and what its done to the rest of the market that worries me.

There are some signs of a bottom. Rail data was still weaker this week, but a little bit improved over last week. If this trend continues, I'll be more bullish. We get jobs data next week and that is sure to be a market mover.

Stay Tuned.

Disclosure: None.

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