Farrell: Stocks We Like Now

I'm afraid this is a very dull note, but get to the end for some stock ideas.

Every so often, I feel the need to "data-dump" but it makes for a very dull note. It's probably still worth skimming since the news has taken on a decidedly different tone. After what we have been through, we should look closely at what appears to be the "green shoots" of recovery, or at least the diminution of bad news.

The first item would be the unemployment claims that came out Thursday morning. Initial claims for unemployment were down 14,000 from last week at 631,000. That is still staggeringly high, but the four-week moving average was also down by a little over 10,000 to 637,250. The peak in claims came the week of March 27 when they registered 674,000. It appears that claims are settling, and, while still high, they are not getting worse. With the severe decline already noted in inventory levels that we have been writing about, it follows that production would have to turn up with any hint of an increase in final demand and the worst of the employment news may be behind us. With claims this high, we will still see very high job losses from the monthly Bureau of Labor Statistics. But we want to see a leveling-off in the carnage, and claims seem to be implying that is happening.

The Chicago Purchasing Managers Index improved to 40.1 from 31.4 in March. 50 is the dividing line between expansion and contraction, so while this report still shows contraction, it is at a decidedly lessened pace. The consensus estimate had been for an improvement but only to the 35 level. Within the report was an item relating to inventories, and it showed they declined. That reaffirms the thought from yesterday's GDP report that the cupboard is getting increasingly bare and the next move could well be a restocking.

Some 100 firms have applied to manage pieces of the Public/Private Investment Partnership- PPIP. That surprises me, since the TALF program is off to such a poor start, in part because firms are so cautious about partnering with our "claw-back" government. Choices and allocations are supposed to be made about May 15, and it could be this program to buy the impaired assets from banks will get off the ground.

Industrial production rose 1.6% in Japan, for the first gain since September 2008. And this was after being down 9.4% in February. South Korea also showed a gain of 4.8% in the same category. China has reaffirmed its expectations for 8% GDP growth this year, so the news from that section of the world is improving.

It's worth noting a few stock recommendations from Soleil's analytical team. Harry Fong favors Travelers Insurance. He figures the company—now trading around $41—will earn over $5 this year, and the pricing environment is rapidly improving. His target of $50 is only about equal to year-end book value. Ed Roesch of Soleil/James River Research favors Kellogg. The company surprised the Street with a better-than-expected earnings report ($0.84 vs. estimates of around $0.79) and emphasized they expect to achieve $1 billion in cost savings by year-end 2011 (which would be $1.85 per share). That type of efficiency will be shared with consumers via price breaks and will allow the company to continue its well-above-average pace of advertising. Most competitors spend around 5% of revenues on ads, and K will spend 9-10%, allowing them to stay well ahead of the pack. The valuation, at 13.5 times consensus earnings, is a goodly discount to its historical valuation, and with a potential 9% EPS growth rate and a better-than-3% dividend yield, Ed thinks the stock should be bought.

Laura Martin of Soleil/Media Metrics likes Comcast. The company's triple play option is gaining favor among customers, and their earnings report showed stellar results. Revenues grew 5%. Average revenue per user (ARPU) was up a strong 8% to $115 per month as cautious consumers entertain themselves more at home, and free cash flow was well over $1.4 billion, up more than 90% from a year ago. She sees the stock at $18 from its current $15 or so.