Tuesday, November 6, 2012

3 Stocks on Sale Now

Wall Street started off on the wrong foot Tuesday morning, with a somber earnings report from Hewlett-Packard (NYSE: HPQ) and a downright ugly number for April housing starts (523,000 at an annualized rate, down from an already anemic 585,000 in March).

So the sellers came rushing in, dumping stocks. But what do you know — the market stabilized shortly before New York lunchtime and began crawling back. At the closing bell, the Standard & Poor�s 500 Index was off only a fraction of a point.

Losing stocks on the NYSE outnumbered advancers by an 18-13 margin. That was a lot better, though, than what we saw in the morning, when there were more than two decliners for every advancing stock.

In short, the market is trying to break its fall here. Most likely, we�ll get a rally over the next few days, then another probe to the downside late in the month.

Worst case, the S&P could shed 10% from its April 29 peak by the time all is said and done (probably in June or July). If yesterday�s action is any indicator, however, the pullback should stop well before the 10% mark. Then we�ll be off to the races again, with new highs for the year no later than the fourth quarter.

How should you play it? Make volatility your friend. In a generally uptrending market, temporary dips represent buying opportunities.

I�m as disappointed as anybody that Hewlett-Packard had to lower its guidance for fiscal year 2011 (ends Oct. 31) to �at least $5� per share. The Street was expecting $5.24. But investors should keep things in perspective. In 2010, HPQ earned $4.58 — a 9% increase in 2011 hardly ranks as a tragedy on the order of Fukushima or 9/11.

At less than 8 times forward earnings, HPQ is as cheap as it got in March 2009 — the lowest P/E for the stock in the past 30 years. Over the next 12 months, I think HPQ has far more upside potential than downside, and the 7% sell-off yesterday represents a screaming buying opportunity for investors.

With the shakeout in the energy sector, I�m spotting some attractive values (finally!) among pipeline partnerships. The best buys include Enterprise Products Partners (NYSE: EPD) and NuStar Energy (NYSE: NS). At yesterday�s close, EPD was yielding 6% and NS 7.2%, both mostly tax deferred. Bear in mind that NuStar�s large asphalt-refining business is quite seasonal, introducing certain risks that a �purer� pipeline operation like EPD doesn�t face. (Bad weather can delay paving projects.) For safety, buy a bigger dollar amount of EPD than NS.

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