by Sam Collins | April 30, 2013 9:26 am
The broad market, as represented by the S&P 500, appears poised to break to new highs. This is supported by price action, internal indicators and sentiment numbers. AAII recently reported that its members’ optimism is below normal, saying, “More individual investors remain pessimistic than optimistic about the short-term direction of stock prices.” Since this is a contrarian indicator, the report is bullish, and so, along with the tape action, the weight of evidence is still in favor of the bulls. New long trading strategies can be initiated, but chasing stocks that have made huge gaps up is probably not the best course of action.
This month’s list of stock to buy is populated with names that are in powerful bull markets. If the broader market breaks to new highs, these stocks should participate. But as we enter the annual period when volume falls and trading tends to slow, volatility increases and market corrections become more likely. Thus, wise investors should decide what prices they are willing to pay for these top performers and enter buy orders at those prices.
Here are your top stocks to buy for May:
Calumet Specialty Products Partners LP (NASDAQ:CLMT), a leading producer of crude oil-based specialty lubricating oils, solvents and waxes, was first highlighted as a Trade of the Day on Feb. 19 at $36.72.
The company had exceeded Q4 earnings estimates, and the quarterly distribution per unit was increased to $0.65. First-quarter 2013 results are scheduled to be reported on May 8. In advance of that release, the company announced another increase in its quarterly cash distribution to $0.68 per unit, which at current prices, offers a yield of 7.2%.
S&P said, “Recent refinery acquisitions should help the partnership access discounted crudes coming from the Mid-Continent and Canada.” And Zacks upgraded the stock to a “strong buy” on March 13, saying the LP “boasts an impressive long-term expected earnings growth rate of 25.32%.”
CLMT broke from a cup-and-handle formation on Feb. 8, followed by a confirming breakaway gap, and ran to a 52-week high of $40.25 in early March. On March 26, the company offered 5.25 million shares priced at $37.50, a 4.1% discount to the prior closing price, and the offering sold out.
In mid-April, at about $37, the stock broke from a triangle, which was accompanied by a MACD buy signal. With a price objective of $42 and a distribution rate at over 7%, CLMT could provide total annual returns of close to 20%.
In late April, leading supplier of health care information technology, Cerner (NASDAQ:CERN), broke higher on a continuation gap from a powerful bull channel that began in November 2010. We have recommended it many times before and had success each time. On Oct. 21, 2011, at about $66, we said it was a buy with a target of $75, and then on May 21, 2012, it was recommended on a pullback to $75, and it ran to over $88.
The company has exceeded its guidance in 9 of the past 10 quarters, and it again exceeded estimates in Q1, causing a revision of the full year 2013 estimate to $2.80 (up $0.10), and $3.29 in 2014.
CERN is a volatile stock, but that can be used to your advantage. A general market correction or slight earnings miss could cause the stock to fall to under $93, where traders should buy it for a trading target of at least $110. The longer-term objective is $120.
Hartford Financial Services Group (NYSE:HIG) is one of the leading U.S. multi-line insurance companies and writer of property and casualty insurance. The company has had success in improving its balance sheet and realigning its distribution, and thus, its growth prospects have improved.
Operating earnings for 2013 are estimated at $3.14, up from $2.88 in 2012, and $3.50 is expected in 2014. HIG has an annual dividend yield of 1.5%.
Technically, HIG completed a high-volume breakout from a cup-and-handle pattern with an impressive breakaway gap on Jan. 2. On April 11, it made a 52-week high, closing at $27.38.
The stock is currently under heavy accumulation, and a trade to $32 is likely. Investors could see much better returns if holding for the long term.
Life-science tools and services company Illumina’s (NASDAQ:ILMN) products provide genetic analysis, including gene sequencing, genotyping, gene expression and molecular diagnostics.
Credit Suisse raised its price target to $72 from $59 after the company reported Q1 2013 earnings of $0.46 versus a consensus estimate of $0.38. The Credit Suisse analyst said, “We reiterate our Outperform rating and consider ILMN our top pick.”
Technically, the stock is in a powerful bull trend and recently broke to new highs on a continuation gap. It is under heavy accumulation with a short-term trading target of $70 and long-term target of $72-plus.
Unifi (NYSE:UFI) uses recycled products to produce REPREVE winter sportswear for companies like Patagonia, The North Face and Polartec, and plans to provide products for the Winter X Games 2013 Aspen.
It was named by Benzinga Research as one of the highest-growth textile company listed on the NYSE. Unifi is expected to earn $0.90 in FY 2014 versus $0.65 in FY 2013, ended in June. In its most recently reported fiscal third quarter, its cash position improved to $15.9 million, from $15.2 million in December 2012.
Following a breakaway gap in February, the stock jumped from $14 to $19. April was spent consolidating its recent gains in a bullish “V” formation. The trading target for UFI is $24, but long-term investors should expect a much higher return.
Yahoo (NASDAQ:YHOO) is one of the world’s largest providers of content and services. Earnings have been variable, but its heavy investment in Asian companies is expected to add stability. Consensus earnings for 2013 are $1.39, up from in $1.17 in 2012, and analysts expect $1.51 in 2014.
The stock broke from a cup-and-handle consolidation in October and ran from $16.75 to over $19 before a brief consolidation between $19 and $20. From February through April, it established a clearly defined bull channel with a top at over $25 and support at $23. The MACD indicator flashed a new buy signal on April 24. Buy YHOO under $24 for a six-month target of $30.
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