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Uneasy Feelings on the Street


There's this feeling that there's something lurking, unseen...

When I called in from the front lines back in August, many comrades were caught in the financial cross fire. Hedge Fund unwinding, the dollar, plunging home prices and the Fed all played a role. The Calvary came to the rescue and we have all enjoyed a pretty decent recovery since then. Occasionally we lost troops to the enemy.

Take a minute to read Professor Nelson's piece Report From the Front: Were the Fed's Actions Positive?

CEO's of major financial institutions wired with DWMD's (Derivative Weapons of Mass Destruction) attempted to kill off the Bulls with large losses and layoffs. Surprisingly their attempts failed. In most cases financial stocks like Citigroup (C), Merrill Lynch (MER) and Washington Mutual (WM) went up after the pre-announcements implying the bad news was already discounted or that it couldn't get any worse. Maybe if the write-offs were smaller the stocks would have gone up less.

As I look across the battlefield there is less blood in the streets which in time could signal less opportunity. The Bulls are getting louder as the major indices have rewarded the faithful and Bears are a bit shaken by the market strength off the lows. Most investors and traders seem content with holding their positions hoping to ride the annual fourth quarter rally. There is however an uneasy feeling building, something lurking, unseen. We sense its presence but can't see or touch it.

Winning Stocks continue to lead: Remember it is GAAP (Growth at Any Price) not GARP (Growth at the Right Price) that is leading the charge. Investors continue to marvel at the outsized moves made by Research in Motion (RIMM), DryShips (DRYS), Google (GOOG), Apple (AAPL) and others. In many ways these stocks are simply safer and more likely to make you money than the Bow Wow stocks. If you want to perform in line with the market than stocks like C, Wal-Mart (WMT) and Microsoft (MSFT) will do the trick. If you are looking for something more than you have to go with the GAAP crowd. We have talked about this before. Focus on companies that have accelerating growth rates, rising earnings estimates and a history of positive earnings surprises. There are fewer and fewer of these gems and as the year goes on I think the search will become more difficult.

Here is one more. Huron Consulting Group's (HURN) business revolves around a myriad of desperately needed services sought after by Fortune 500 companies. Whether it is forensic accounting, fraud investigations or corporate advisory work HURN has a team to tackle the job. Is it expensive, you bet it is? At 30x 07 and 23x 08 the shares don't come cheap. However, earnings are up 67% from last year and expected to climb another 30% next year. Sales are up big time as well. I know these are nosebleed stocks and not very comfortable to own. Just remember, the market doesn't pay you to be comfortable. You have to sweat a little to reach the goal line.
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No positions in stocks mentioned.
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