Patient Investors Will be Rewarded
The political uproar from the debt-ceiling negotiations has resulted in high volatility and heavy selling in the past week. But despite the uncertainties, along with an economic slowdown in Europe and the United States, stocks are still confined to a trading range that began early this year.
But offsetting the uncertainties is the fact that with more than three-quarters of all companies reporting earnings, almost three-quarters of them have exceeded Q2 earnings estimates. Thus, it appears that the current trading range will be maintained. Patient investors should use the current pullback as an opportunity to acquire undervalued securities.
Here are your top stocks to buy for August:
Top Stock to Buy #1 – Caterpillar (CAT)
Caterpillar (NYSE:CAT) is the world’s largest producer of construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. The stock has been in a bull market since the market bottomed in March 2009. CAT was one of our Top Stocks to Buy for December because of its position as a major supplier to the third world and China. The company should also be a beneficiary of orders from Japan due to the damage from earthquakes and the tsunami.
Revenues in 2011 are expected to increase by 36%, according to S&P, and margins are expected to increase, as well. Earnings for 2012 are forecast at $9.10, up from $7.50 this year, and S&P has a target of $142 over the next 12 months.
Technically CAT has strong support at $95 and currently appears to be oversold, according to Moving Average Convergence/Divergence (MACD). If it is able to hold at the support line, look for a rally to $110 within 30 days. Longer term the stock could trade north of $125.
Top Stock to Buy #2 – Dollar Tree (DLTR)
Dollar Tree (NASDAQ:DLTR) is a leading operator of discount variety stores. The stock has hugged its 50-day moving average since mid-February. But a recent minor revision of earnings for this year by several analysts and the recent market sell-off have resulted in a fall from its high of the year at over $70 to under $66. However, Goldman Sachs (NYSE:GS) increased its price target to $73 from $69.
Technically DLTR is oversold, according to MACD. A break below its 50-day moving average could result in a pullback to $64, but positions could be taken at the current market price. The trading target for DLTR is $72.
Top Stock to Buy #3 – Schlumberger (SLB)
Schlumberger (NYSE:SLB) is a premier supplier of technology and oil-well services and equipment. S&P has upgraded SLB to a “buy,” and Credit Suisse upgraded it to an “outperform” rating because the company exceeded recent earnings forecasts and increased its view of future earnings for 2011. SLB’s fundamental target is $117 and is based on earnings estimates of $3.85 for 2011, $5.40 for 2012, and $6.05 for 2013.
Technically SLB may become the object of profit-taking following a recent run to over $95. Positions are recommended at around $85 with a target of $115 before December 2011, assuming a breakout through a triple-top at $95.
Top Stock to Buy #4 – Tupperware Brands Corp. (TUP)
Household name Tupperware Brands Corp. (NYSE:TUP) is a global direct seller of products with multiple brands through an independent sales force of 2.4 million people. Its product line focuses on kitchen storage and serving solutions, as well as personal-care products. Over 60% of sales in 2011 are expected to come from Europe and Asia, and the stock has appeal as an emerging markets story.
S&P estimates that 2011 earnings will increase to $4.54 versus $3.53 in 2010, and it increased its rating to a “five-star strong buy” with a recently revised 12-month target of $81, up from $73. The 2005 purchase of Sara Lee’s (NYSE:SLE) direct-sales business, which has a high growth rate, should be a long-term benefit. TUP’s annual dividend yield is 1.92%.
Technically TUP had a pullback following a new high at over $70 and is currently oversold. Buy TUP at the current market price with a trading target of $70, but longer term a much higher target will likely be attained.
Top Stock to Buy #5 – Under Armour (UA)
Under Armour (NYSE:UA), a maker and designer of apparel, footwear and accessories that target sports enthusiasts, has more than doubled in one year. But despite the advance, many research firms still have a “strong buy” recommendation on the stock. And S&P recently revised its annual target to $93.
Technically UA has advanced on a series of stair steps, sometimes called “base moves.” These are very bullish formations that resemble cups. UA reversed up recently following a signal from our proprietary Collins-Bollinger Reversal (CBR) indicator. If the recent pullback to its 50-day moving average (blue line) holds, then the next move up should break the prior high with a target of $85.
Traders could take risk positions now with a target of $85 to $90. But be careful and use stop-loss orders to protect against a violent reversal, which could drop prices back to support at $62 where this volatile stock could be bought again.
Top Stock to Buy #6 – VMware (VMW)
VMware (NYSE:VMW), a subsidiary of EMC Corp. (NYSE:EMC), is a leader in virtualization software. The company reported strong Q2 earnings, and the stock was raised from a “hold” to a “buy” by several analysts. The company is a global leader in both virtualization and cloud infrastructure. S&P is looking for earnings of $1.56 this year, up from 99 cents in 2010. The price target was recently raised to $124 based on management’s experience in cloud technology and customers preference to buy from known leaders in the field like VMware.
Technically the stock retreated on profit-taking after jumping to over $110 in July. If the support line at under $100 fails to hold, look for a pullback to around $95 where we recommend that the shares be bought. Note the breakout from an ascending triangle and the stock’s long history of trading above its 200-day moving average (red line). The technical target for VMW is $130 by the end of this year.
