Launching the Santa Claus Rally
With Christmas just around the corner and the market closing at 1 p.m. today, I wanted to send you today’s update a little early so you can get a jump on your holiday weekend. We’ll take a quick look at the recent market action and I’ll share a few news items on our GameChangers stocks. Let’s get right to it!
The market has rallied sharply since last Wednesday, thanks in part to Fed Chair Janet Yellen’s call for patience in raising rates, which launched a seller’s strike and the anticipated Santa Claus rally.
Economic data released since last week has been mixed. Yesterday’s final revision of third-quarter GDP coming in at a better-than-expected 5% was encouraging, while November existing home sales of 4.93 million versus expectations of 5.2 million, and new home sales of 438 ,000 down from the anticipated 460,000 were disappointing. Because of the mixed news, I believe the rally has more to do with traders wanting to send prices higher toward the year-end.
I expect to return to more normal patterns after the New Year, with volume increasing as both buyers and sellers move back into the market and the Street once again contending with the sharp decline in oil prices, the softening economies in Europe and the potential economic crisis in Russia.
Regardless of what the market throws our way, we’ll continue with our strategy focusing on fundamentally strong stocks and staying disciplined in our selling, like we did when we locked in profits in On Assignment (ASGN) yesterday. As always, I’ll be in touch right away with a Flash Alert whenever it’s time to take action.
DGI Continues to Rise
DigitalGlobe (DGI) has made a nice rebound for us this month, rising 12% since December 1 to put us back in the black. The renewed strength is due in part to two announcements. First, management indicated they were extending the expected useful life of DGI’s WorldView-1Satellites from 10.5 years to 13 years, and its WorldView-2 satellite from 11 years to 13 years. Both satellites are now expected to be in service until 2020 and 2022, respectively. In addition, DGI set the useful life of WorldView-3, which was just launched in August, at 11.5 years.
And secondly, management announced that the Board of Directors authorized an additional share buyback of $130 million, raising the total amount of repurchases outstanding to $205 million. I was also interested to see that the company indicated it was a big buyer of its own stock while the shares were very depressed, repurchasing 2.54 million shares in the current quarter at an average price of $27.34. I’m very pleased to see this continued momentum, and with the outlook for 2015 very strong, this remains an attractive name right now. With the shares now trading above its buy limit, hold DGI for our $35 target.
Management Shakeup for EFII
Electronics for Imaging (EFII) announced yesterday after the close that CFO David Reeder had submitted his resignation as CFO and would be leaving for printing company Lexmark International (LXK). COO Marc Orlin will serve in his place until a new CFO is brought on board.
While Mr. Reeder’s departure was sudden, he had only been CFO at EFII for a little less than a year. I suspect his leaving was due to the position simply not working out for him, rather than a sign of trouble brewing for the company. I still see upside for the stock ahead, and recommend that you continue to buy EFII under $47.
WWAV’s Potential Partnership
WhiteWave (WWAV) made some waves (no pun intended!) this week after a Barron’s article on Monday morning suggested that it’s a solid partnership candidate for Coca-Cola (KO). I had mentioned in a recent update that KO was reportedly launching a premium milk brand that was unlikely to impact WWAV. This new partnership proposal would be similar to the one KO already has with Monster Beverage (MNST) as it would give it a presence in faster growing beverage categories by taking an equity stake in WWAV.
Shares were up on the news, but gains stayed muted at around 2% since the article was just an idea from analyst rather than a legitimate news story. While a partnership is certainly a possibility, WhiteWave still has several company-specific catalysts (including its strong brand recognition and expected EPS growth of 15% in 2015) to drive the stock higher even if KO does not make an offer. WWAV remains a buy below $37.50.
I wish you and your loved ones a very happy and safe holiday!
Sincerely,
Hilary Kramer
Editor, GameChangers
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