After a small gap down this morning the market has been quiet during the session, drifting slightly higher. The crickets could be due to the massive winter storm that has blanketed much of the Midwest with more than a foot of snow and brought freezing rain and ice to the New York area, or just digestion after yesterday’s explosive move. Despite the indices trading in a tight range, there has still been tradable action in select sectors.
Clouds Rise on APKT Earnings
On a day when the clouds in the sky are heavy, cloud stocks have continued to lift. The high growth, highly valued cloud sector has been prone to painful drops after disappointing earnings and outlook announcements. Back on October 6th, weak outlook from Equinix, Inc. (EQIX) triggered a cloud debacle. The next big drop came on January 19, when F5 Networks, Inc. (FFIV) missed on revenue and lowered guidance.
Since that latest sell-off, cloud stocks have begun to repair their charts. Today we are seeing that a very positive report can indeed have the inverse effect of a mediocre one. Yesterday after the close Acme Packet, Inc. (APKT) beat across the board in its earnings report, prompting a series of price target raises and buy recommendations from analysts. The stock is now trading 16% higher from yesterday’s close. We are also seeing the optimism spill over into the entire sector. Rackspace Hosting, Inc. (RAX) and SAVVIS, Inc. (SVVS) are among the strongest, up 6% and 7% respectively, while other big names like salesforce.com, inc. (CRM)-3.5%, VMWare, Inc. (VMW)-2.5%, Quest Software, Inc. (QSFT)-4%, and FFIV-2% have also been strong.
The weather is clear for cloud stocks for now, but it remains a volatile area. If you want exposure to the sector without taking the headline risk of piling into one company, consider the PowerShares Dynamic Networking ETF (PXQ).
Rare Earth Gets A Lift
The rare earth sector has been a bit out of favor in the last couple of weeks but are staring to perk up out of lower consolidations today. On January 24th group leader Molycorp, Inc. (MCP) announced a secondary offering to fund Phase 2 expansion of its California Mountain Pass mine, and move that is supposed to double production. At the time we stated that the announcement could signal a bottom in rare earth as production begins to grow, and so far that fact has held true.
Apple Resting, Still Looks Good
This morning we noted our bullish stance on Apple Inc. (AAPL) The stock has been resting near the pivot high around $245 this morning, and may need some time to rest after some manic action in the last two weeks. If you have a more long-term value investing approach, Apple remains very attractive from a valuation perspective.
Casinos May Wait for LVS Earnings
The casinos sector has been hot for the last couple years, but has cooled off in recent months. Macau gambling revenue continues to grow–up 33% in January 2011 from January 2010–and as building slows more that revenue will flow into the bottom line. Macau is also seeing an uptick in mass-market gamblers as the Chinese economy grows and its population grows in affluence.
The catalyst for the next move in the casinos could be Thursday’s earnings announcement after the close from Las Vegas Sands Corp. (LVS). LVS analyst price targets have mostly been met, so it will likely take an earnings beat and raised outlook for those expectations to be increased. True group leader Wynn Resorts International (WYNN) has more upside based on analyst price targets, and is basing in the upper end of its range rather than a wedge like LVS.
*DISCLOSURE: Scott is long LVS, AAPL, AVL; Short SPY. John is long RAX, CRM, MCP, LVS, AAPL.
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