A New Week and A New Beginning

Good morning,

I can finally focus on my stocks after a hectic week preparing for my wedding. I am finally married, and I thought most of my guests did enjoyed themelves at the wedding dinner. Afterall, we did 100 bottles of wine, 3 bottles of champagne, 4 bottles of whiskey and 5 bottles of brandy! And that's excluding the extra bottles of post dinner drinks at J Bar. But it was fun. And why not? While enjoying my drinks at the J Bar, BHI achieved my 20% profit target and my limit orders were executed. What a blessing! A big red packet from the stock market! In fact, U.S. stocks climbed on Friday, with the Dow hitting a closing high for 2009, as investors anticipated positive news from next week's key earnings reports and bullish broker comments boosted tech shares so I am still very much in the money for the stocks I am holding.

Well, what are the criteria for the stocks I filtered? Since I am looking for fundamentally sound companies, these are some of my minimum basic requirements for a company to qualify for shortlisting for further analysis; The company's last 5 years average ROE has to be equal of more than 7.5, Price to cashflow ratio equal to or less than 15, the last closing price must be at least equal to or less than 75% of the stock's 5 years average price. Of course these are only 3 of the many other criteria I used, but it should be good enough for the many traders in the market today without any clue which stocks to buy other than trusting their gut feel and punting neighbours. So the companies my filter rules shortlisted this week are:

Patterson-UTI Energy Inc (PTEN), Genesco Inc (GCO), Cardinal Health (CAH), Edison Internation (EIX), Overseas Shipholding Group (OSG), XTO Energy Inc (XTO) and BHI (Baker Hughes). Of these selected stocks, only PTEN, CAH and XTO are new additions. So let's take alook at them.

But first let's see how DJIA will probably be this week. Here's the Cycletrend Chart;

I had written last Monday that DJIA will be trading sideway or negative last week. I was wrong. DJIA actually closed higher. Looking at the Cycle Chart, it seems that DJIA will continue to trade higher before consolidating for the week. There should be potential upside from the candle and since it has not touch the bollinger resistant, I will be slightly optimistic with the market for the short term, and holding on to my belief that US market will be trading sideway for the quarter.

Patterson UTI Energy is a mid-cap growth company in the energy sector and provider of contract drilling business and pumping services to oil and natural gas operators. From the company's financial statements, I am not comfortable with its' operating cashflow and decreasing operating income for the last 3 years. The company has also missed analyst earnings estimates for 2 straight quarters.

Here is the chart for PTEN;

Technically, the stock should continue to trade higher this week but since I am not comfortable with the fundamentals and with more analyst calling for strong sell than strong buy, I will give this stock a miss. However, as oil price stabilized and oil and gas companies anticipating future expected recovery in the economy, I will continue to buy into BHI as BHI is also in the energy sector and has better fundamentals and technical indications.

Of the few selected company, I am optimistic with Cardinal Health Inc (CAH). This company provides products and services to the healthcare industry. Analysts are recommending strong buy for the company, and company's officers are acquiring the company's shares. The stock closed at $27.32 last week and the Cycle Chart shows that it will trend up for the near future. As for the financial fundamentals, the earnings are good after taking into consideration of the spin off of CFN, operating cashflow is consistent even for the increase in the inventories. A little concern for the inventories but overall I believe this company may be a good buy.

So will I be buying this stock? Why not?

See you soon.

Francies Cheng
BBus MAppliedFinance