Market Drops on Unemployment Concerns
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The beginning of the week investors looked to have a positive finish after two weeks of bloodletting but on Thursday an unexpected unemployment report send the DOW tumbling more than 200 points, leaving it 2 points away from 10,000. There were 480,000 initial jobless claims filed in the week ended Jan. 30, the Labor Department said in a weekly report. This is the highest level since Dec. 12. Other negative news included Toyota motors announcing that the massive recalls of cars due to the gas pedal problems could end up costing $2 billion.
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Looking at the news this week, we see a good opportunity, one that smart investors should recognize.
One of Warren Buffet’s investment rules is "buy when investors are panicking" and there is some panic.
Our Bullish pick’s stock price is falling not only because of a product error, but an overreaction by investors to sell. The company's fundamentals are solid by any investor's standards and it may take a year for the stock to recover, but there is a chance to buy a long term company at a bargain right now. Our Bearish pick shows us that numbers can be misleading and when it comes to evaluating performance and you need to know what to look at. With it's excellent cash flow and payouts, the recent earnings report exceeded expectation, but the stock still fell. What is the metric that has investors nervous? |
 Toyota Motor Corp (TM)) -
The stock has fallen nearly 19% since Jan. 21, when the company announced a recall of vehicles. The negative brand problems Toyota is having are not simply cosmetic, but the drop in price is an over-reaction. The company has the money to withstand the coming drop in sales and the negative news will subside soon enough. The technology advantage Toyota has over its American counterparts is real and will be more evident in the coming year. The Lexus brand will likely not be affected and we see a rebound in price by the end of the year.
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 Yum! Brands (YUM) -
Earnings were better than expected, but investors still punished the stock this week, why? Well, With any type of retail chain, same store sales is the number to evaluate performance, same-store sales for YUM were down 3% in China, their biggest market. We don't believe YUM will be a big loser this year, but the truth is that looking over the stock performance over the last 6 months, investors don't seem to want this stock to move past $36 or below $34.
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