3 Best Performing Stocks in August: CSIQ, FRF, SBLK - Analyst Blog


Markets shrugged off a variety of international headwinds to end August on a positive note. After enduring a tough first week, benchmarks picked up speed, achieving multiple landmarks. This upswing was powered by economic reports, most of which were on the positive side. Encouraging earnings results and deal news also lifted stocks. Together, these factors shrugged off negative economic data coming out of Europe and, more importantly, the effects of geopolitical tensions in Ukraine, Gaza and Iraq.

August's Performance

For the month, the S&P 500 advanced 3.8%. The index registered its best August performance since 2000. The Dow and the Nasdaq too gained 3.2% and 4.8%, respectively. The Dow and S&P 500 registered their best monthly gains since February.

Encouraging economic data and deal news provided a boost to markets. Most of the worrisome news was external in nature. This ranged from dismal economic data out of Europe to conflicts in Iraq, Gaza and Ukraine. Possibility of Eurozone stimulus measures and a banking rescue plan in Portugal were among the few positives on this front.

Earnings and Deal News

The month featured robust earnings results from companies including Time Warner, Twenty-First Century Fox, Molson Coors Brewing Company, Coach, Inc. and Toyota Motor Corporation, Home Depot, Inc, Target Corp. and American Eagle Outfitters, Inc.  

The failure of two high-profile merger deals -- Sprint Corporation ( S ) and T-Mobile U.S. Inc. ( TMUS ), and Time Warner Inc. ( TWX ) and Twenty-First Century Fox, Inc. ( FOXA ) -- dragged down the markets. However, news of a deal between Dollar General Corporation ( DG ) and Family Dollar Stores Inc. ( FDO )  was also welcomed by investors.

Shares of Tim Hortons Inc. ( THI ) jumped 8.5% after Burger King Worldwide ( BKW ) agreed to buy the Canadian restaurant chain for about $11.4 billion. This will create one of the biggest fast-food chains in the world.

Amazon.com Inc. ( AMZN ) announced the acquisition of Twitch Interactive, a video game streaming company, in an all-cash deal for around $970 million. This will be the second biggest acquisition by Amazon and will enhance the company's online media and content offerings.

Domestic Economic Data

Upbeat ISM Services Index, factory orders, trade balance started off a month of largely positive economic reports. Industrial production rose 0.4% while PPI for finished goods increased 0.1% in July, in-line with the consensus estimate. Housing data, including reports on homebuilder confidence, existing home sales and building permits were encouraging.

Separately, leading indicator index numbers, durable orders and consumer confidence also encouraged investors. The monthly survey of manufacturers in the New York State by the Federal Reserve Bank of New York showed modest improvement in business conditions. Q2 GDP's second estimate came in at 4.2%. This was higher than the consensus estimate of 3.9%, indicating an economic recovery.

Discouraging data on retail sales and home prices were among the few disappointing reports of the month.

External Economic Factors

Early in August, markets were boosted by a recovery plan for Portugal's banking crisis. Per the plan, the country's central bank announced it was splitting BES into a "good bank" and a "bad bank." The good bank would receive a bailout of €4.9 billion from the bank resolution fund. Subdued Chinese inflation data was the other positive.

Downbeat European growth numbers, discouraging retail sales numbers and disappointing Germany's investor confidence data were some of the negatives for the week. GDP data from the Eurozone was dismal but had little effect by the end of the day on the US markets.

Germany posted a higher-than-expected unemployment rate in August with a dismal inflation rate of 0.8%. Spain saw annual deflation rate of 0.5% in August. Moreover, Belgium's inflation rate reached 0.02%, the lowest level in about 5 years. Additionally, the Eurozone's inflation rate is expected to decline from 0.4% in July to almost 0.3% in August, much behind the ECB's target of 2%.

News from Jackson Hole

Both US Fed chairwoman Janet Yellen and ECB President Mario Draghi's speeches at Jackson Hole, WY failed to encourage investors. In her speech at Jackson Hole, Yellen said the economy is approaching Fed's target of full employment and a stable inflation rate.

However, she also mentioned that there is no "simple recipe" that the Fed could follow to determine whether it was achieving its targets. She did not turn down the possibility of earlier-than-anticipated rate hike if labor market conditions continue to improve and the inflation rate increased more rapidly.

However, there were some lingering doubts about the timing of rate hike, especially after Yellen failed to give any clear indication on it during her speech.

Draghi also failed to provide any clear picture about weak growth in the Eurozone. At Jackson Hole, he said the ECB is looking to implement more flexible policies in order to combat the Eurozone's high unemployment rate.

Draghi added fiscal policy should play a "greater role" in addition to monetary policy for economic growth. However, he blamed major economies for not implementing flexible fiscal policies. He believes that the ECB alone cannot tackle high unemployment prevailing in the Eurozone.

However, he also made comments at the same event which lifted investor sentiment. Draghi said the currency bloc's political leadership should move beyond the tight fiscal policy of the last few years that has dragged down the region's growth and has done little to combat deflationary pressures.

Ukraine Crisis

Investors remained concerned about Russia's military buildup along the eastern border of Ukraine. The lingering tension led to fresh sanctions being imposed on Russia. Moscow responded aggressively to Western sanctions by imposing bans on import of fruits and vegetables from Europe.

Tensions in Iraq also dented sentiments as the U.S. announced airstrikes against ISIS and airdrop of medicine and food for minorities.

Meanwhile, Russian President Vladimir Putin's comments had eased concerns related to geopolitical tensions. However, the situation worsened when Moscow sent a big aid convoy without the consent of the Kiev government or the participation of the International Committee of the Red Cross (ICRC). Ukraine called this move a "direct invasion" into its territory, and the U.S. and NATO condemned the move.

Last Thursday, Ukrainian President Petro Poroshenko accused Russia of sending troops into Ukraine in order to support the pro-Russian separatists in the eastern region. It was reported that the separatists have captured the town of Novoazovsk. The U.S. and the European Union decided to strengthen their sanctions further against Russia following this development.

In a recent development, Putin has compared Ukrainian military tactics to that of Nazis when they invaded Russia. His statements came in as Ukraine sought full membership of North Atlantic Treaty Organization and the abolishment of a law banning membership in military blocs.

Other Geopolitical Tensions

In Gaza, the Israel and the Palestinians agreed to extend the ceasefire settlement by another five days. Before the 14th, they were maintaining a 72-hour ceasefire agreement proposed by the Egyptian government. U.S. President Barack Obama announced that the U.S. will continue with their airstrikes over rebels in ISIS. He also mentioned that the situation in Mount Srinjar improved impressively.

Meanwhile in United Kingdom, the international terror threat level was increased to "severe" from "substantial" by the country's Joint Terrorism Analysis Centre.

3 Star Performers for August

I ran a screen on Research Wizard for companies with the following parameters:

( Click here to sign up for a free trial to the Research Wizard today ) :

  1. Percentage price change over the last 4 weeks greater than or equal to 20%
  2. Forward price-to-earnings Ratio (P/E) for the current financial year (F1) less than or equal to 20. This picks out stocks that are good value choices
  3. Expected earnings growth for the current financial year greater than or equal to 20%
  4. Zacks Rank less than or equal to 2: This ascertains stocks that have shown above-average returns over the last 26 years.

(See the performance of Zacks' portfolios and strategies here: About Zacks Performance ).

Here are the top 3 stocks among the 11 that made it through this screen:

Canadian Solar Inc. ( CSIQ ) is a vertically-integrated manufacturer of silicon ingots, wafers, cells, solar modules (panels) and custom-designed solar power applications. The company designs, manufactures and delivers solar products and solar system solutions for both on-grid and off-grid use to customers worldwide.

Percentage price gain over the last 4 weeks = 42%

Canadian Solar has significant expected earnings growth for FY2014 and holds a Zacks Rank #1 (Strong Buy). The stock's forward price-to-earnings ratio (P/E) for the current financial year (F1) is 9.11.

Fortegra Financial Corp. ( FRF ) provides distribution and administration services and insurance-related products to insurance companies, insurance brokers and agents and other financial services companies in the US.

Percentage price change over the last 4 weeks = 41.6%
Expected earnings growth for FY2014 = 29.8%

Currently, the company holds a Zacks Rank #2 (Buy) and has a P/E (F1) of 13.34.

Star Bulk Carriers Corp. ( SBLK ) is a global shipping company providing worldwide seaborne transportation solutions in the dry bulk sector. Star Bulk's vessels transport major bulks, which include iron ore, coal and grain and minor bulks such as bauxite, fertilizers and steel products.

Percentage price change over the last 4 weeks = 31.5%
Expected earnings growth for FY2014 = 31%

Apart from a Zacks Rank #1 (Strong Buy), Star Bulk Carriers has a P/E (F1) of 18.53.

Domestic Positives Outweigh International Headwinds

All three benchmarks have ended the month on a positive note. Clearly, domestic strength has shrugged off economic weaknesses. The only gnawing feeling in the minds of investors is the timing of a Fed rate hike. The Fed Chair remains elusive about its timing and markets seem to be ignoring this concern for now.

However, international tensions continue to linger. Conflicts across the globe have already started affecting other nations like the UK. Despite these factors, stocks seem to be on a high as of now. If economic reports and other domestic factors remain positive this month as well, stocks may well enjoy strong growth in the days ahead.

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SPRINT CORP (S): Free Stock Analysis Report

CANADIAN SOLAR (CSIQ): Free Stock Analysis Report

TIME WARNER INC (TWX): Free Stock Analysis Report

FORTEGA FIN CP (FRF): Free Stock Analysis Report

STAR BULK CARRS (SBLK): Free Stock Analysis Report

TWENTY-FST CF-A (FOXA): Free Stock Analysis Report

T-MOBILE US INC (TMUS): Free Stock Analysis Report

FAMILY DOLLAR (FDO): Free Stock Analysis Report

AMAZON.COM INC (AMZN): Free Stock Analysis Report

DOLLAR GENERAL (DG): Free Stock Analysis Report

BURGER KING WWD (BKW): Free Stock Analysis Report

TIM HORTONS INC (THI): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: S , CSIQ , TWX , FRF , SBLK



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