Global stocks staged a big rally Friday after European leaders cajoled Germany into participating in a bailout plan that could see money injected directly into European banks.
For the week, the S&P 500 climbed 2% and the Dow jumped 1.9%. The NASDAQ lagged with a 1.5% gain, while the MSCI Emerging Markets Index led them all with a rise of 3.57%. All three major U.S averages regained their 50-day moving averages.
Your Bull Market Alert portfolio also had a big week, with your position in Pharmacyclics Inc. (PCYC) soaring 14.25% and 3D Systems Corp. (DDD) jumping 7.80% to hit yet another record high. Your options in DDD are now up 90%, and on the verge of clocking triple-digit percentage gains. Novo Nordisk A/S (NVO) also shot up 4.44%, crossing its 50-day moving average and moving back to a BUY.
This week’s Bull Market Alert recommendation, Standard Pacific Corp (SPF), is a bet on a much-hated sector that has showed surprising strength in the United States in 2012 — real estate.
One of the nation’s largest home builders, SPF builds single family homes, condominiums and townhouses across the United States, including California, Florida, Arizona, North Carolina, South Carolina, Texas and Colorado.
Negative headlines notwithstanding, the big-picture case for investing in real estate in the United States is improving. Sales of new homes have increased nationwide in six out of the last nine months. In May, sales hit an adjusted annual rate of 369,000 homes, the fastest pace in more than two years. The National Association of Realtors said last week that its index of sales agreements increased to 101.1 last month from 95.5 in April, with a reading of 100 considered healthy. That level also matches March’s reading, itself the highest since April 2010, when a home-buying tax credit boosted sales. The latest pending home sales data suggest sales of previously occupied homes will be up by nearly 4% in June.
No wonder home builders like SPF are gaining confidence in the market and starting to build more homes.
In many ways, SPF is a contrarian bet even within the housing sector. After all, it is concentrated in the absolute worst states for housing — California, Florida, Nevada, and Arizona. Yet it has also been among the first of the big home builders to turn around, and has been profitable for two quarters running.
So what is SPF’s secret?
First, over the past couple of years, SPF purchased land for a fraction of its earlier selling price. That makes its sale of homes more profitable than they would have been otherwise. SPF’s gross housing margin now sits at 20.3%, making it one of the few home builders with a gross housing margin north of 20%.
Second, low interest rates are making it cheaper to buy than to rent. This has been translating well into SPF’s bottom line. In Q1, new orders rose 43%. Earnings are growing at an even more impressive rate. Last quarter, earnings grew by 150%. This quarter, the company is expected to grow by an eye-popping 300%.
So buy Standard Pacific (SPF) at market today, and place your stop at $4.60. The stock just broke out to the upside last week, so I am going to hold off on recommending options until the stock settles, and the options get cheaper.
Portfolio Update
Bank of Ireland (IRE) rose 4.13% over the past five trading days. Euro-zone leaders reached a landmark decision last week as they opted to allow the European Stability Mechanism to recapitalize Irish banks directly. This effort is an attempt to minimize the impact of the debt on Irish taxpayers, improve Ireland’s credit rating, and allow for the use of credit that is critical to an economic recovery. IRE is a BUY.
National Bank of Greece SA (NBG) fell 4.47%. National Bank of Greece experienced some major personnel changes last week as a new Greek coalition government was sworn in. NBG appointed Alexandros Tourkolias as chief executive officer, and interim Finance Minister George Zannias will replace the resigning chairman. NBG is a HOLD.
Monster Beverage Corp. (MNST) lost 3.27%. UBS issued a statement to investors last Tuesday advising them to buy shares on the recent dip in Monster’s stock price. UBS also reiterated that MNST’s fundamentals still reflect strong prospects for growth. MNST is a BUY.
Novo Nordisk A/S (NVO) rose 4.44% last week. To put NVO’s stake in the global diabetes treatment market into perspective — Novo sold nearly $10 billion in diabetes drugs last year and currently holds 27% of the overall market. There are 280 million diabetes patients globally, with nearly 10% of the U. S. population affected. Charging above the 50-day moving average, NVO is a BUY.
3D Systems Corp. (DDD) gained 7.80%. DDD completed a “hat trick” this week, finishing its third, 50-day moving average to 52-week high round trip. DDD also announced its “Smarter 3D Printing” program last week that conducts live interactive seminars for entrepreneurs, allowing them to experience this budding technology first-hand. DDD is a BUY.
Pharmacyclics Inc. (PCYC) had another fantastic week, jumping 14.25% over the past five trading days. PCYC is also experiencing the strongest volume it has seen since it started trading. PCYC is a BUY.
Mellanox Technologies, Ltd. (MLNX) gained 2.15%. Two weeks ago, analyst firm Wunderlich Securities reaffirmed its “Buy” rating on MLNX and raised its price target to $85. Barclays followed suit last week maintaining an “Overweight” rating and raising its price target to $80. Although MLNX moved sideways last week, this analyst’s positive views may be the catalyst to push this stock higher. MLNX is scheduled to report earnings on July 18 and is a BUY.