It is a pretty reliable trend to see the stock market
consolidate after earnings announcement season winds down. But
serious consolidation is less likely this November as the
mid-term election cycle will put investors in a bullish mood. I
don't want to sound too political here, but things are on the
verge of changing in the House of Representatives and in the
Senate. Don't take my word for it; just listen to what most
political analysts are saying. As of the time of this writing,
the odds of the House turning Republican are 87.1%. The odds of
the Democrats retaining the Senate are just 58%. As you can see,
people are expecting a big shakeup in both chambers.
So, if predictions are correct, we'll likely see a split in
the control of power in Washington as the legislative branch goes
to the Republicans. This is welcome news for Wall Street. You
see, when one party controls both the White House and Congress,
it's much easier for the government to pass new legislation and
change the regulatory environment, as it has done in the last two
years. This makes it harder for companies to expand their
businesses and spend money because they have no guarantee that
the rules won't change in the near future.
When control is split between two parties, legislation piles
up and little change is accomplished. This gives companies the
all-clear signal that they've been waiting for and unleashes a
wave of corporate spending. Corporate America has raised almost
$500 billion in new bond debt and the cash in corporate cookie
jars is fast approaching $2 trillion (approximately 13% of the
value of the stock market). This cash is burning a hole in
corporate pockets and is hurting businesses that are sitting on
it. That's why businesses are impatient to unleash their money on
the U.S. economy via capital spending after the elections,
accompanied by even more dividend increases, stock buybacks and
mergers and acquisitions. This puts a firm foundation under the
stock market and helps boost our tech holdings. The tech sector
is always the first to benefit from corporate spending because
upgrading equipment and adding technology are the first things
companies spend money on.
Not all of the market tailwinds are coming from politics.
We're also getting a nice boost from the falling dollar. While
many observers worry about the decline in the dollar, it is in
fact great news for our stocks.
The decline allows companies with more foreign sales to
receive a greater amount of dollars when they exchange them from
This is why a lower dollar is helping boost corporate
profits. Unlike the S&P 500, where approximately 40% of
sales are derived outside the U.S. from large multinational
companies, my stocks derive more than 60% of their sales from
outside the U.S. As a result, the further the U.S. dollar falls,
the more windfall profits my stocks pile up. In short, a weaker
dollar is great news for my Buy List stocks!
Deere & Company
) is the world's largest farm equipment manufacturer and a
leading producer of construction, forestry and commercial and
residential lawn care equipment. If you have ever seen a tractor,
you probably recognize the signature John Deere green color or
know the company's "Nothing Runs like a Deer" slogan.
Unlike in Eastern Europe where wheat production has slowed, U.S.
crops have surged in the past several months. Currently, the
country is producing a record number of crop exports. The higher
demand for crops is leading to a greater need for farm
Although agriculture only accounts for about 1% of the U.S.
economy, the actual impact of surging prices could be 10 times
greater once spending on equipment, seeds, grain handling and
food processing is calculated. This is why Deere & Co. stands
to capitalize on high agricultural commodity prices.
I see this as a great way to play the overall trend in higher
food prices that is developing with the decline in the
The analyst community is expecting that Deere's quarterly
sales will rise +31%, and its earnings will rise a whopping
+300%! The company has a strong earnings surprise history
and should continue to benefit from high food and crop prices, as
well as a weak U.S. dollar. This stock will report earnings at
the end of November. Add shares of this conservative stock to
your portfolio under $84 before that time.
Magna International Inc.
) is a global supplier of automotive systems, components and
modules. The company is a survivor, seeing as several of its
competitors have been dragged down by the bankruptcies of
automotive giants GM and Chrysler. The company provides services
ranging from vehicle engineering and assembly to production of
exterior trim and building interior door panels.
Magna is on the brink of several important advances in the
automotive industry. In September, the Magna E-Car division
opened its newest hybrid and electric vehicle development center
in Michigan. As far as cars go there's nothing faster than the
race to build truly efficient hybrid and electric cars and Magna
is set on crossing the finish line first. The past year has been
good to Magna, with the opening of several new locations and new
assembly contracts with major car brands like Aston Martin. The
company's forecast continues to look sunny with continued deals
with GM and Ford and a stronger presence in the auto-hungry
countries of South America on the way.
In the second quarter, the company's sales rose +63.1% to
$6.05 billion, compared with $3.71 billion in the same quarter a
year earlier. During the same period, its earnings rose to $293
million, or $2.59 per share, from a loss of $205 million, or
$1.83 per share, a year earlier. When the company reports
earnings on November 5, the analyst community is expecting the
company to post a sales increase of +13.7% and an earnings
increase of +220%! In the past three months, the analyst
community has revised its consensus earnings estimate +27.9%
higher so these results could very well come in above current
estimates. This is a great conservative buy under $95.