Economic and political factors can upset any well-reasoned fundamental or technical approach. And when the prospect of war is introduced, predictability suffers.
With this in mind, I expect the market to rally in the near term because it is oversold in almost every respect. This oversold condition, coupled with a geopolitical situation that has suddenly become less intense due to the surprise delay of military action against Syria, leads me to believe that buyers will push prices at least to their immediate resistance zones.
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Overall, the bull market is still intact. The U.S. is experiencing modest growth, but the possible reduction of the Fed’s bond purchasing program and a shaky recovery in employment add uncertainty to the equation. Thus, the stock selections for this month are focused on either high-quality dividend growth stocks or stocks with unusual features and strong financials that should weather the storms of political and economic instability.
Here are your top stocks to buy for September:
Top Stock to Buy #1 – Celgene (CELG)
Celgene (CELG) develops small-molecule drugs for the treatment of blood-borne and solid-tumor cancers and inflammatory diseases. S&P said it has “the brightest growth prospects among large-cap biotech companies,” and the stock has been on the Trade of the Day buy list for over a year.
In early January, CELG broke from a classic cup-and-handle formation, which took the form of a wedge or right triangle. This has been followed by three more breaks and has run the stock from $78 to almost $150.
From the standpoint of technical analysis, it just doesn’t get better than this. The stock consolidates, pauses to gain new strength, and then breaks out again. And that is what it appears to be doing now with the recent jump from $133. The target for the current breakout is $155 and is supported by a strong new MACD buy signal.
Top Stock to Buy #2 – Dominion Resources (D)
Dominion Resources (D), once known as just an electric power utility, has transformed itself over the last 10 years into one of the largest producers and transporters of energy in the United States, operating one of the largest natural gas storage systems in the country.
Despite missing earnings estimates by a small amount for the last two quarters, the stock was up 20% this year at its May high, due to future earnings potential from its gas-transmission business. And its LNG export plan is forward thinking and could ensure profitability for years to come. The consensus earnings estimate for 2013 is $3.34 and $3.54 for 2014.
Its recently declared dividend is its 342nd consecutive quarterly dividend, and that alone is worth a premium price. The company currently pays an annual dividend of $2.25 for a 3.9% yield.
The stock is trading within a bullish triangle with support at its 50-day moving average at $58 and its major bullish support line and 200-day moving average at $56. Buy D for a combination of increasing dividends and long-term growth.
Top Stock to Buy #3 – Gilead Sciences (GILD)
On Nov. 19, 2012, I recommended Gilead Sciences (GILD) at $37.20, because I thought that the large-cap biotech was well-positioned to gain market share. On Aug. 9, at $58.82, I noted, “GILD is up 60% from our initial buy point. Investors who bought in November should protect their positions by writing calls or buying puts. Any weakness in the stock that results in a pullback to its 50-day moving average — around $55 — should be used to buy new shares.” On Aug. 15, the stock retreated to $55.96, its 50-day moving average, and advanced to over $60.
S&P estimates operating earnings will increase 42% in 2013 and 50% in 2014. And EPS is estimated to be $1.86 in 2013 and $2.78 in 2014. New hepatitis C drugs and stabilization in market share for their leading HIV drug are expected to enhance future earnings; thus, GILD should be high on the list of biotech stocks in investors’ portfolios.
Technically, the stock is in a clearly defined bull channel with support at its 50-day moving average at $57. With its internal indicators (MACD, stochastic, etc.) positive, investors who do not own the stock should take a position at the current market price and those who have already purchased should hold. The trading target is $67, but GILD should be positioned as a long-term hold with a 12-month target of over $80.
Top Stock to Buy #4 – ONEOK (OKE)
Oklahoma-based integrated energy company ONEOK (OKE) markets, transports, stores and trades natural gas liquids. Its distribution segment is the largest gas utility in Kansas and Oklahoma and the third largest in Texas. With the spin-off of its natural gas utility business late in 2013, it will become a pure play MLP GP holding company. Its dividend should increase rapidly, and since OKE is a corporation, investors will receive a 1099 rather than the annoying K-1 that partnerships issue.
This was all stated by management in a conference call in late July, and the stock jumped from just under $43 to over $53 in one day. The spin-off is expected to be effective before the end of the year.
The weekly chart of OKE indicates that the holding company is in a bull market but trades within a 10-point range from $40 to $50. Because of the spin-off, the stock may fall back to its 50-day moving average at $48 where you should be a long-term buyer with the objective of benefiting from regular dividend increases and internal growth.
Top Stock to Buy #5 – Rock-Tenn (RKT)
Rock-Tenn (RKT) is one of the largest producers of corrugated medium, linerboard, paperboard and merchandising displays with operations in the U.S., Canada, Mexico, Chile, Argentina and China.
It is the clear leader in its industry with earnings that have crushed estimates for each of the past four quarters. When it released fiscal Q3 results in July, it exceeded estimates by 30%, reporting earnings of $2.16 per share versus an expected $1.67. Management stated, “A performance-based, data-driven culture also helps us continuously reduce costs and increase customer satisfaction.” S&P estimates earnings for full-year fiscal 2013, ended in September, will be $7 per share, up from $4.48 the prior year, and $9.50 for fiscal 2014.
This stock has been trading in a powerful and predictable bull channel since December, rising over 75%. Recent profit-taking and a weak stock market have dropped it from its August high of over $118 to just above its 50-day moving average. Buy RKT at $115 or lower for a trading objective of $125. Long-term buyers could reap a much larger reward from this mid-cap gem.
Top Stock to Buy #6 – Santarus (SNTS)
Small-cap biopharmaceutical company Santarus (SNTS) focuses on immediate-release proton pump inhibitors to treat gastrointestinal conditions. The company reported Q2 diluted non-GAAP adjusted earnings of $0.31 versus analysts’ estimates of $0.17. Prescription volume was up 13% from the year-ago quarter.
The company expects earnings of $1.21 to $1.26 this year, which is above the previous guidance of $1.03 to $1.15. It also expects to file four investigational new-drug applications this year and is planning a Phase IIa study on SAN-300, a treatment for rheumatoid arthritis.
Technically, SNTS is in a bull channel that in August ran too far above its 50-day and 200-day moving averages. Despite the strong fundamentals, it was primed for a correction. It has retreated from over $28 in early August and now rests on its bullish support line at just above $22, where it should be bought. The trading target for SNTS is $28, but it could catch fire and beat that target by a wide margin.