U.S. stocks moved higher for the fourth straight day led by Industrials and Financials.
Goldman Sachs advised buying Industrials, especially multi-industry companies, citing “the historical tendency for meaningful outperformance when the ISM moves sustainably above 50.” As part of its call, Goldman upgraded Illinois Tool Works (ITW) and raised its price target on General Electric (GE), United Technologies (UTX), and 3M Company (MMM).
Financials were boosted by a flurry of analyst upgrades. Citigroup lifted ratings on Capital One Financial and MasterCard explaining that the “big negative adjustment” in consumer spending has already taken place. The analyst also notes “the credit cycle has begun to recover for U.S. credit cards…and an improving U.S. economy will support local bank credit stabilization” in 2010.
Meanwhile, J.P.Morgan upgraded Morgan Stanley citing valuation as the stock has lagged behind investment banking peers. The note added that by the end of 2009, Morgan Stanley will have a core Tier 1 ratio of 12%, which could be enough to support $8 billion of stock buybacks, split between 2010 and 2011.
Oil prices extended their recent gains on the expectation that OPEC will leave production targets unchanged. Ongoing weakness in the U.S. dollar has also helped prop up prices.
The Fed’s Beige Book says economic activity continues to stabilize, but Calculated Risk says it best: “Stabilization is not new growth. Just more beige shoots…”
United Natural Foods (UNFI) earnings beat projections, but sales fell short of expectations. Despite the weak top-line, the distributor of natural and organic foods improved profitability and cash flow due thanks to lower fuel expenses, efficient cost controls, and operational improvements at its distribution centers.
In addition to disappointing revenues, UNFI’s projected 2010 EPS range of $1.48-$1.58 didn’t measure up well to analysts’ forecast of $1.57.
Although UNFI, like its competitors, have been hit as consumers trade down to lower priced groceries, it is clear that UNFI is reaping the benefits of years of distribution-network expansion, as well as its entry into the specialty-foods business in 2007.
Quick Hits
- Finance Overhaul Falters as ’08 Shock Fades
- Inflation Fear Pushes U.S. Endowments Deeper Into Commodities
- Can You Name These 14 Bubbles?
- Walmart’s Project Impact: A Move to Crush Competition
Peter J. Lazaroff, Investment Analyst
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