DARK HORSE HEDGE’S BALANCING ACT I, 7/25/10
By Scott Brown at Sabrient and Ilene at Phil’s Stock World
Whether or not it had anything to do with the dubious European stress tests or better-than-expected second quarter earnings reports, we’ll never know, but our preponderance of evidence indicators for market trend finally turned positive. The S&P 500 rallied Friday with nine of the 10 sectors that make up the index closing higher. Mid and small-cap indices outperformed this week indicating interest from retail investors. The MACD 12-26-9 finally broke through the signal line (0) on Friday to +.96, and the SP 500 closed above its 50-day Moving Average, but still short of the 200-day Moving Average of 1113. The Dark Horse Hedge will take advantage of the trend confirmation to increase the balance in our Long/Short portfolio by adding two new Long positions at the open on Monday. These new additions bring the portfolio almost into balance with six Longs and eight Shorts, while we’ll watch the trend for further guidance on tilting.
Add Deluxe Corporation (DLX) LONG at open Monday
Deluxe Corporation provides various personalized printed products, promotional products, and merchandising materials to small businesses and financial institutions in the United States, Canada, and Europe.
Deluxe Corp is a strong value purchase as the market trends higher. DLX beat analyst estimates of +$.62 for the second quarter by earning +$.68. The four analysts’ are projecting +$.66 and +$.72 for the next two quarters. The company has beat estimates each of the last four quarters. DLX is trading at a P/E of 8.0 versus the industry average of 16.7. Sabrient has a STRONGBUY on DLX and is the highest rated Commercial Services & Supplies group.
Add LONG Forest Laboratories, Inc. (FRX) at the open Monday
Forest Laboratories, Inc. develops, manufactures, and sells branded and generic forms of ethical drug products.
We like the fact that FRX is on The Pragmatic Capitalist’s "No Debt" list (via his blog post last week). Consistent with today’s theme for DHH we are adding another long which beat analyst estimates for the June quarter. Twenty seven analysts’ projected a profit of +$.86 but FRX delivered a positive +$.95. Last month, eighteen of the 27 analsyts’ increased their September forecast. Heading into the quarterly earnings season, many investors had avoided the health-care sector but with many beating expectations, and FRX also increasing revenue projections, we are taking a long position in our virtual portfolio. Sabrient has a STRONGBUY on FRX with an exceptional BALANCE SHEET score of 88.3 out of 100 and a FUNDAMENTALS score of 92.3. FRX would also be an excellent stock for Phil’s Buy/Write strategy.
We will continue monitoring the market and are considering adding two more Long positions in order to achieve a balanced 1:1 Long/Short ratio. We will also suggest a couple easy option strategies for those who would like to sell option premium to reduce the cost of their long-term positions. Check back tomorrow for Part II of Dark Horse Hedge’s Balancing Act.
