Top News on Jan. 17 that You Might Have Missed

Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

What happened today, why does it matter, and what could it mean for the future? Here's my take on Thursday’s company-specific and broader industry news that could have long-lasting effects on your portfolio.

Multi-Year Highs

Let’s jump straight to the big news: The S&P 500 reached five-year highs; the Dow Jones reached its highest levels in seven years; and the Russell 2000, mid-cap index, and transportation indexes all reached all-time highs on Thursday. So what does this mean? In some ways we are in uncharted territory with another drawn-out debt limit discussion taking place.

Obviously, investors are willing to invest money in this market, and there are several sectors that continue to outperform. Perhaps investors may want to invest in stocks within the transportation sector, as no rally is complete without the transports on board. With the markets at new highs investors should tread with caution, but if a larger breakout occurs I wouldn’t want to be sitting on the sidelines.

Construction Pays Off

Data shows that housing starts have now reached their highest levels since 2008, and PulteGroup is leading the way! On Thursday we saw PulteGroup (NYSE: PHM) lead the S&P in gains due to this strong data, adding to its one-year return of 170%. The valuation of this company is now getting quite excessive, therefore it might be time to bet against the stock at new 52-week highs.

However, you might also want to keep in mind that people have been betting against this stock all year… and have been wrong every step of the way! I suggest a detailed and long assessment of this company’s fundamentals before taking any position at these levels.

Big Banks Announce Earnings But Regionals Steal the Show!

The much anticipated earning releases from Bank of America and Citigroup didn’t go quite as planed, as both companies posted huge losses after missing expectations by considerable margins. However, regional banks such as BB&T, PNC Financial, Huntington, and Fifth Third all traded significantly higher after strong quarterly performance.

I suppose this means that the strength in construction and housing is starting to reflect on the banks, just not the ones you expected. These are banks that are still showing great value and might be worth your due diligence, as stocks that could continue to rally higher in 2013.

JPMorgan Makes Bold Calls on Communications Equipment Stocks

Cisco Systems (NASDAQ: CSCO) fell by 0.38% on a day when the market traded at multi-year highs following a downgrade by JPMorgan. The call was quite controversial because it pushed the stock lower, but also because the firm blamed “sluggish enterprise spending,” which was an area of improvement. Furthermore, the firm was quick to choose Juniper (NYSE: JNPR) over Cisco, with an “Overweight” rating.

The firm provided a number of reasons for choosing Juniper, such as an improving carrier capex, new routers, stock buybacks, and operating leverage that could produce gains. However, I find it a bit odd that the firm did not mention Alcatel-Lucent (NYSE: ALU), a company that has been hot as of late. From a valuation point of view, I choose a company that is making major improvements and with a price/sales of 0.20 rather than a company that is fully appreciated with a price/sales of 2.50. In other words, I’d choose Alcatel, or even Cisco, over the fairly valued Juniper.

Dow Chemical Could Face Steep Penalty

Here’s a story that went a bit unnoticed, but could be huge nonetheless: Supposedly Dow Chemical (NYSE: DOW) is facing damages over $3 billion if it loses a trial in which it’s accused of fixing the price of urethane chemicals. Other companies Bayer, Huntsman, and BASF have already settled similar cases, totaling just $149 million. However, $3 billion in damages is a massive loss for this company -- it seems there could be more to this story than what we currently know. As a result, I’d follow it closely if I owned this stock.

Conclusion

Developments such as these ultimately dictate the direction of a stock, both short and long term. Therefore, it’s important that investors are aware of these developments and then, with additional due diligence, use the information to make an educated investment decision. With that being said, stay tuned to what may happen next.


BrianNichols is long ALU. The Motley Fool recommends Cisco Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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