Taking Stock: Stocks broke a four-week string of steep losses, recording the largest weekly gain in months. Encouraging commentary from some major banks, coupled with easing worries about the economy, helped push stock market gains for four consecutive days. It was the best run since November. Financial stocks, which have been this year’s worst performers, led the rally with a 34% jump for the week. Industrials, Materials, and Technology stocks also recorded double-digit gains. The rally started on Monday when Citigroup told investors that it earned money in the first two months of the year and that the bank was on course to post the best quarter since 2007. JPMorgan Chase and Bank of America made similar comments about their operations. However, operational profits do not count possible write-offs from asset loss. The write-offs are not likely to abate soon given the current state of the economy. Still the market was happy that they were at least profitable at an operational level, indicating it took a longer term view. But that doesn’t mean it won’t change its mind next week.

Another positive is that there were more encouraging data coming from the economic front that could set the stage for recovery in the second half of the year. February retail sales declined only 0.1%, beating analysts’ expectations of a 0.5% decline. Excluding autos, retail sales were up 0.7%. But more importantly, there was a significant upward revision to January retail sales, which were upgraded to 1.8% from the initial estimate of 1.0%. This was a positive sign, especially since the market has grown accustomed to downward revisions. It remains to be seen if last week’s bounce could start a sustained rally since the negative news outweighs the positive. Anyway, let’s go through the numbers:

Chips got crispier, but the Coffee was too strong for them to beat. VLSI’s trademark Chips-to-Coffee ratio (the ratio of Intel’s to Starbucks’ PEs) fell to 0.35 as Coffee gained ground on Chips. Starbucks’ PE soared 9.5 points to 45.5, while its stock followed with a whopping 26% gain. Meanwhile, Intel’s PE rose 2.5 points, while its stock price leaped nearly 19%.

Chip making stocks had a good week as foundries and subcons reported an improvement in order activity. The Equipment stock index was best performer among VLSI’s indices, recording a 12.4 point jump. The Chip stock index was up for the second consecutive week, this time by 7.6 points. Chips are now 7% higher for the year. VLSI’s HT2 Indexº jumped 5.6 points, while the S&P 500 was up 8.4 points.

Of the 36 stocks that VLSI tracks, 32 managed a gain, which was significantly higher than the 7 in our last update. The range ballooned to 72 points, with the best performer at +30% and the worst at -42%.

The hot stock of the week was UMC with a whopping 30% gainer. The Taiwanese foundries are reporting higher utilization rates due to a pick up in order activity. Second spot went to Kulicke & Soffa and third to Micron. The next three spots went to Teradyne, Applied Materials, and Lam Research. The bar marking the above-average performers was set at a sizzling +12%.

Value Buys, Hot Pop-ups, and Hottie Indicators: Of the list of overlooked value buys to look over — or stocks with a PE of less than 15 — there were no companies that outperformed the average—same as in the previous week. So the value players remained out, though there aren’t that many of them left in our list. As for the hot pop-ups of the highly valued plays, or stocks with a PE of greater than 20 or less than zero, there were 15 companies with above-average growth versus 4 in the previous week. So, the gamblers were back in the market betting forward PEs are too pessimistic and upside surprises lie ahead. Finally, 2 of the 6 Hi-Tech Hotties clocked in with above-average growth compared to 1 in the prior week. Hotties’ performance was a bit disappointing in what was a very good week.

Taking Stock contains the opinions of its industry analysts and none of it should be seen as a recommendation to buy our sell. We are not stock analysts. You should contact a registered investment advisor for as to the nature, potential, value or suitability of any particular investment action. To the extent any of the information contained in Taking Stock may be deemed to be investment advice, such information is just an opinion and is not tailored to the investment needs of any specific person. VLSI’s past results are not necessarily indicative of future performance. Although data was obtained from sources considered reliable, it cannot be guaranteed. No independent steps have been taken to confirm its accuracy, truthfulness, or completeness.

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