Analysts continue to debunk double-dip recession fears by citing improving individual company metrics, helping fuel the stock market’s comeback from a correction.
An MKM Partners analyst upgraded The Cheesecake Factory, citing sales of its ‘small plate’ items such as mini corn dogs and warm crab and artichoke dip. An FBR Capital Markets analyst today reiterated his recommendation of the lodging sector, citing specifically strong bookings for Nashville-based Gaylord Entertainment’s Opryland resorts. This follows a BB&T Capital Markets analyst Monday who upgraded FedEx because pilot hours worked were being ramped up to pre-recession levels.
This contrasts with the top-down outlook of economists such as Nouriel Roubini, who just today reiterated in the Financial Times his stance that “the global economy is heading for a serious slowdown this year.”
But investors are agreeing with the analysts on the ground these days, saying that double-dip fears are overblown and that stocks therefore, are undervalued. Alcoa, the first Dow member to report 2nd quarter figures, was the catalyst for today’s rally after the company said it saw improving aluminum demand across all of its business lines.
“Double-dip fears are unfounded,” wrote MKM’s Stephen Anderson in his note upgrading shares of The Cheesecake Factory to ‘Buy’ from ‘Neutral’. “The company’s ability to sustain top-line growth through incremental purchases (e.g.) ‘small plates’, desserts) and menu price increases are the keys for our bullish call for CAKE.”
Gaylord Entertainment operates the Grand Ole Opry and resorts in the Nashville area, along with Orlando, Dallas and Washington D.C.
“We especially note management indicated that 2010 guidance provided in early June will likely ‘go up’ during 3rd quarter earnings in early August due to strong new bookings and Opryland re-bookings at its three other properties,” wrote FBR analyst Patrick Scholes today, following a meeting with company executives. “We recommend using market pullbacks as opportunities to add to positions and reiterate our sector overweight, notably Gaylord Entertainment and Wyndham Wordlwide.”
Deutsche Bank upgraded Illinois Tool Works today to ‘Buy’ because economic fears had driven the stock down to very attractive levels relative to historical earnings. The global maker of fasteners, power systems and polymers “would be vulnerable to a double-dip, but this is not our base case and we believe that ITW’s highly diversified industrial end-markets can continue to growth through 2011,” wrote Deutsche Bank’s Nigel Coe.
To be sure, not all investors are buying what these analysts are selling. Following these calls means you have confidence “that analysts have a snowball’s chance in hell of getting the actual impact of those macroeconomic concerns correctly factored into their earnings estimates,” said Patty Edwards, founder of money manager Storehouse Partners. She is skeptical this rally can continue under the weight of slowing global economic growth, let alone a double-dip.
Some analysts are simply not concerning themselves with the macroeconomic picture. “Either double-dip fears will recede and investors will once again seek and pay up for the few discretionary stocks with real growth opportunities, or double-dip fears will continue to plague the market and investors will start to re-examine which business held up the best in 2008,” wrote a Credit Suisse apparel analyst Omar Saad, in a note to clients today. He recommends Ralph Lauren and Guess .
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Trader disclosure: On July 13, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders: Seymour Owns (AAPL), (BAC), (INTC), (MSFT); Adami Owns (AGU), (C), (GS), (INTC), (MSFT), (NUE), (BTU); Finerman's Firm Is Short (IJR); Finerman's Firm Is Short (IWM); Finerman's Firm Is Short (MDY); Finerman's Firm Is Short (SPY); Finerman Owns (AAPL); Finerman's Firm Owns (BAC), (BAC) Leaps; Finerman Owns (BAC), (BAC) Preferred; Finerman's Firm Owns (BP) Calls; Finerman Owns (GOOG); Finerman's Firm Owns (JPM), (JPM) Leaps; Finerman Owns (JPM); Fimerna's Firm Owns (MCD); Finerman's Firm Owns (RIG) Calls; Finerman's Firm Owns (YUM); Terranova Owns (ADI), (GOOG), (APC), (GMCR), (MYL), (BAC), (ABT), (AXP), (HES), (AMZN), (SUN), (SMH), (MYL), (MRVL), (ADI), (EMC), (CVS), (AKAM), (ADBE), (MON), (KCE), (FCX) ; Terranova Owns (FCX) July Calls; Kelly Owns (BP) Puts; Kelly Is Short (GS); Jon Najarian Owns (SCHN), Is Short (SCHN) Calls; Jon Najarian Owns (STLD), Is Short (STLD) Calls; Jon Najarian Owns (BP), Is Short (BP) Calls
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