3 Long And 4 Short Ideas For August – David Urban

August historically is one of the worst months for technology and precious metals stocks while financials tend to have a seasonal rally. Investors looking to pick up some quick alpha can play some odd cross currents during this seasonally weak month.

Long

Goldman Sachs (GS) – An earnings miss last quarter should deter investors from going long one of Wall Street’s premier names. Goldman’s earnings growth was very strong on a year-over-year basis. Year-to-date the firm is the leader in M&A and equity underwriting with a strong Tier 1 capital ratio. The recent selloff should be looked at as a buying opportunity.

Wells Fargo & Co. (WFC) – One of the stronger financials in a weak sector with strong Net Interest Margins and ROA when compared with peers. Credit quality continues to improve and its depth and breathe in US retail banking will allow Wells Fargo to lead when the sector turns.

Best Buy (BBY) – The leader in the big box electronics retail segment. Technically, we are putting in a triple bottom and with back-to-school season in full swing electronics sales should see an uptick. Best Buy’s dominant position in this retail segment will drive revenue and profit growth into the fall and Christmas buying season.

Short

Microsoft (MSFT) – The new Windows phones are right around the corner and there will be a massive retail push in an attempt to grab significant market share during the Christmas buying season. However, PC sales growth continues to sputter as tablets are making inroads and Online is bleeding red ink.

Intel (INTC) – Strong second quarter earnings masked significant portfolio weaknesses. Overall desktop sales are flat as smartphones and tablets begin to push out replacement cycles. Intel continues to miss the switch into smartphones and tablets.

Silver Wheaton (SLW) – This stock is everyone’s darling as the unique business plan has been copied by a few other companies. However, silver’s meteoric rise this year means that it becomes more difficult to sign contracts with mining companies to sell silver for $3.90 per share. The change in leadership this year has not brought new contracts and clarity for the future business plan. There are better values elsewhere in the streaming sector.

Silver Standard (SSRI) – Management has overcome problems at Pirquitas in Argentina, but questions concerning sovereign risk at San Luis in Peru have popped up. Technically, we are in the process of completing the right shoulder of a head and shoulders pattern so investors should be wary ahead of earnings.

http://seekingalpha.com/article/282730-3-long-and-4-short-ideas-for-august

Yesterday I discussed the possible down move as part of a larger wave in the silver market and credited Seeking Alpha contributor David Urban for some of the research. David has Silver Wheaton (SLW) and Silver Standard Resources (SSRI) as two short ideas for August. David, like myself also called for a reversal in the dollar in advance of it happening a few months back. He also correctly called for a rally in gold and the equity markets over the last two months when equities were at the lows.

Many tech plays are extended going into the month of August. After a debt ceiling hike is agreed upon, the market will likely rally off of the lows but will soon have to deal with poor economic data. The Nasdaq has outperformed the market so far, and technology may be a good area to look in to for shorting opportunities in the near term.

I like the call on financials for the month of August. Financials put in a bottom a few weeks ago and are currently off of the lows made throughout this past week. Bank of America (BAC) is sharply higher today after Harry Reid announced that his plan would make its way through the Senate. Citigroup (C), Wells Fargo (WFC), and Goldman Sachs (GS) have all staged a nice rally over the last week to two weeks and could potentially be putting in a higher low with today’s close.

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About Aaron Basile
Market Technician, Equity/Commodity Trader, Austrian Economist, Contrarian Investor

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