Investcraft – The Art of Investing

Yesterday, Alcoa (NYSE: AA), the first Dow component to report earnings, exceeded expectations. Tiffany (NYSE: TIF) and Sears (NYSE: S) also reported and provided a bright outlook for 2011. Despite the optimistic news, stocks only rose modestly.

I definitely feel like the stock market is getting fatigued. While a major pullback is unlikely, there may be some bumps in the road — especially with the uncertainty surrounding Europe. I still think the European debt crisis has been overblown. In fact, the less news about it, the less of a problem it will be. It’s kind of a self-fulfilling prophecy. If investors feel Europe’s debt problems are going to cause a financial collapse, the more likely it is to happen. So the less we hear, the better.

On the home front, I think Jan and Feb will both be fairly good months for the market. Earnings announcements will add some stability to people’s perception of the economy and earnings outlook will eliminate some uncertainty on corporate profits. However, once March comes along, we may be facing some uncertain times. A combination of profit-taking and lack of stimulus will probably cause some type of pullback. The extent of the pullback may be determined by what investors and the media decide to focus on. If the European debt crisis comes back into play, we may see a significant reversal. However, if the European debt problems take a back burner to rosier headlines (like positive economic reports), the stock market may continue it’s steady rise. In any case, I still think the likelihood of a pullback is significantly higher once we hit March.

Now, looking at specific sectors and stocks — I am particularly high on companies like Sina.com (NASDAQ: SINA) and Alibaba.com (OTC: ALBCF.PK), both stocks I own. With Facebook’s recent investment by Goldman and their clients, the valuation of Facebook is now over $50 billion. It’s only a matter of time before that type of valuation gets applied to other stocks in the social/internet sector. Sina, in particular, looks very interesting because they own Weibo (Twitter of China). There’s been some rumors circling SINA about a potential Weibo IPO in 2011. Also, SINA’s stock (last trade @ $82.77) is cheap compared to others in the internet space — their P/E is a mere 11.8 times last 12 months earnings. That’s a rare combination of value and explosive potential.

I also like Alibaba (last trade @ $2.02) because they dominate the e-commerce sector in China. I’ve written about them in the past and continue to believe that their intrinsic value will be unlocked at some point in the near future. Facebook’s eventual IPO should help the valuations of Alibaba, Sina, and other peers.

Lastly, I will end with a few interesting stocks I picked up this week. Many of these are rather speculative plays so make sure you do your own due diligence before you make your investment decisions.

FBP (last trade @ $5.55) – Dora Financial recently made an unsolicited buyout offer for FBP at $4.50 that was rejected by the company. It’ll be interesting to see if someone else comes along and tries to buy FBP at a higher price.

FBC (last trade @ $1.66) – FBC sold $474 million in NPA (non-performing loans) back in Nov 2010. I think they might be turning the corner and at $1.66, I think it’s worth a gamble.

SLM (last trade @ $13.92) – SLM provides student loans. They’re actually profitable and have a TTM P/E of 24. As the economy recovers, SLM stands to gain. The cost of education will only go up which will mean more business for SLM.

TSTC (last trade @ $7.62) – TSTC was hit with negative rumors and fraud allegations by various short sellers. TSTC recently completed a secondary offering at $12/share back in Nov 2010. In less than 2 months, the stock is now trading at $7.62. Seems like shorts are using scare tactics to drive down and manipulate the stock price. I’ve seen this happen at UTA and other stocks that operate in China. Look for TSTC to bounce back nicely when the company issues PR to defend itself.