Recession Scenarios Abound

Kevin Cook here filling in for Steve this week.

The "wait 'n see" mentality is slowly settling into the market. After a mild recession has been quickly priced into stocks, this is a calmer view of the investing landscape where fear and volatility subside and institutional investors process the economic data to build new projections about how much worse it could get.

What are they waiting for? More visibility about economic growth and the impact that last month's GDP revisions will have on corporate earnings estimates. Remember, even though we are starting to get lower macro growth forecasts from the big investment research houses, we haven't even begun to see the company-specific downward earnings revisions that could come from analysts in September -- and into October earnings season.

If stocks are flirting with the "cliff", as I call the S&P 1,100 level, oil, copper, and the euro – 3 good barometers of risk appetite – are holding up well above $80, near $4, and around $1.43 respectively. Speaking of the euro, we still wait to see if the political wrangling in that monetary "dis-union" has large ripple effects that tilt the US closer to recession, especially if a banking crisis unfolds or European growth slips further than expected.

Until we know more about the economy and its vulnerabilities – and many are just waiting to see what Ben Bernanke says at Jackson Hole on Friday – stocks could easily dip below 1,100 in another wave of recession fears. But bargain hunters will be rewarded "buying the dips and selling the rips." I've called this a trader's market for the next two months where you don't need to worry about missing the bottom, and need only trade the swings when good stocks go on sale.

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Best,

Kevin Cook
Senior Stock Strategist, Zacks Investment Research

Today's Top Stories: Tuesday- August 23, 2011

ZACKS RANK BUY STOCKS

• Aggressive Growth - Cabela's Inc. (CAB) second-quarter net income was up 15% to a better-than-expected $22.3 million. EPS came in at $0.32, a nickel higher than the Zacks Consensus Estimate. Read More...
   
• Growth & Income - Franklin Electric Co., Inc. (FELE) Zacks Consensus Estimate for 2011 is $2.68, representing 38% EPS growth. The 2012 consensus estimate is 15% higher at $3.08. Read More...
   
• Momentum - Twin Disc, Inc. (TWIN) earnings came in at 66 cents, 23% ahead of the Zacks Consensus Estimate, where the company has an average earnings surprise of 93% over the last four quarters. Read More...
   
• Value - Insight Enterprises, Inc. (NSIT) has an extremely low price-to-sales ratio of just 0.1. A P/S under 1.0 usually indicates undervalued. Additionally, NSIT also has an excellent 1-year return on equity of 16%. Read More...
   

Learn how to profit from our exclusive Zacks Rank stock-ranking system with free resources. Read More...

• Top 5 Growth Mutual Funds Read More...
• Mutual Fund Homepage

• Bull Of The Day: Fastenal Co.
  
  Full Zacks research report: Read More...
  
  
• Bear Of The Day: Cincinnati Financial
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• Ahead of Wall Street
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• Zacks Industry Outlook: U.S. Banks Stock Outlook - Aug. 2011
  Along with improving results in recent quarters, a major recovery in the asset markets, improving balance sheets and declining credit costs promise growth for the U.S. banking sector. Read More...
  
  
• Analyst Blog Highlights
• Fed Agencies Adopt VMware Solution
• EU Okays Thermo Fisher's Phadia
• Citigroup Reaffirmed at Neutral
• Full Analyst Blog

• What Does Europe & Libya Mean for Us?
• Value Stock Picks-Aug. 22, 2011
• Growth & Income Stock Picks-Aug.18, 2011

PeopleAndPicks.com:

VIP "Neurodoc" gains double digit returns with BUY calls in (QID), (STS) and (TZA). Read More...

• Gold tops $1,900, looking 'a bit bubbly' @ CNNMoney.com
• Photo Finish: Stocks Close Modestly Higher, Ending Two-Day Rout @ FOXBUSINESS.com
• Updates, advisories and surprises @ MarketWatch

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