Zacks Bull and Bear of the Day Highlights: Potash Corporation, Royal Caribbean, Apple, CNH Global and IBM
CHICAGO, Aug. 5, 2011 /PRNewswire/ -- Zacks Equity Research highlights Potash Corporation (NYSE: POT) as the Bull of the Day and Royal Caribbean's (NYSE: RCL) as the Bear of the Day. In addition, Zacks Equity Research provides analysis Apple (Nasdaq: AAPL), CNH Global (NYSE: CNH) and IBM (NYSE: IBM).
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Full analysis of all these stocks is available at http://at.zacks.com/?id=2678.
Here is a synopsis of all five stocks:
Potash Corporation (NYSE: POT) recorded strong second-quarter 2011 net earnings of $0.96 per share, up 81% from $0.53 in the prior-year quarter and well ahead of the Zacks Consensus Estimate of $0.86. Revenues increased 61.8% year over year to $2,325 million, driven primarily by higher nutrient prices.
Rising demand for food grain from emerging economies and adverse weather have pushed grain prices to record levels, boosting fertilizer prices. The scarce supply of potash is another factor for the rise in demand, and the company has already started preparing to meet this demand by investing in its ongoing potash operational capability. Potash Corp. expects to spend $1.6 billion on potash expansion projects.
It raised its full-year earnings forecast to between $3.40 and $3.80 a share, instead of $3.00 to $3.40. We have thus upgraded our recommendation to Outperform from Neutral with a target price of $63.00.
Royal Caribbean's (NYSE: RCL) probable cannibalization of its existing fleet, lower visibility on a new class of ships that the company is designing and the strengthening of the U.S. dollar make us cautious. Moreover, the company has cut its full-year EPS guidance range, owing to geopolitical risks in the eastern Mediterranean region.
These disturbances have compelled Royal Caribbean to modify some of its sailings that adversely affected both demand and yield. Hence, we downgrade the stock from Neutral to Underperform.
Our six-month target price of $26.00 per share equates to about 9.1x our estimate for 2011. The target price implies an expected total return of negative 10.0% over that period. Therefore, we recommend an Underperform rating on the shares.
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Sell-Off Offers Opportunity
You probably know the VIX has been hanging out in the teens for a while. And you probably hear traders talk about a spike above 30 indicating rampant fear.
I call the way the VIX moves "punctuated equilibrium" because it sort of hangs out in an area of quiescence for a while until a surprising event makes it spike. I borrow the phrase from my favorite biologist and teacher of evolution, the great Stephen Jay Gould of Harvard, who left us early in the last decade.
This week, the VIX is on the move into the mid-20's as fear and protection buying build and option market makers adjust their volatility forecasts to price in a greater risk premium. Institutional investors will keep some stocks and simply buy S&P index puts.
It will probably move much higher (on a percentage basis) before this rout is done. The March sell-off barely got us above 30 before fear subsided and stocks were considered bargains again.
For investors who think like traders and who like this idea of selling puts on downdrafts, use the VIX as a welcome gauge of juicy premiums. When it surges above 30, take a look at your favorite stocks you want to buy "at a discount" and see where their IV is.
It should be at yearly highs. I might see CMI vol hit 60% or higher and I will definitely be selling more puts then because the stock will likely be on sale. I'll also be looking for opportunities in Apple (Nasdaq: AAPL), CNH Global (NYSE: CNH), and IBM (NYSE: IBM).
After this sell-off is done -- in a month, or three -- volatility will "revert to the mean." In other words, it will come back down and settle into its quiet territory and stocks will likely crawl their way back higher. Barring a severe recession that is.
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.
About the Bull and Bear of the Day
Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.
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