Europe Could Spur A Double Dip Recession (SAI, ULTA, ZQK, COO, EDV)

The market took it on the chin, as a much weaker-than-expected jobs number, combined with some worries over the country of Hungary, sent stocks reeling. We still believe the U.S. economy is improving, but it’s not surprising that jobs are still lagging. The overhang of the healthcare bill on small- and medium-sized businesses along with increased efficiency and productive tools, such as cloud computing, as well as outsourcing, are all possible contributing factors to slow hiring trends. Meanwhile, the foundation of a recovery has been laid in that people who have kept their jobs have returned to normal spending patterns now that they are more assured that their jobs are safe.

A double-dip recession is possible given everything going on in Europe and the fear spread by the media, which could influence consumer spending decisions, but with more federal stimulus dollars almost guaranteed to be thrown at any problem, it would most likely be a shallow one.

All in all, we still feel that the market is in a near-term correction mode, with a bias towards more downside. Both stocks and the economic data, meanwhile, are likely to remain volatile. However, we think this is a solid opportunity to continue to nibble at stocks on the way down.

The Bond ETFs Index was the top performing tickerspy Index on the day, led by Vanguard Extended Duration ETF (EDV) with a 4% gain.

Stocks nosedived on the day, with the Dow falling -324 points to 9,931. The S&P lost -38 points to 1,065, while the Nasdaq dropped -84 points to 2,219. Oil tumbled -$3.10 to $71.51 a barrel, while gold rose $7.90 to $1,216.20 an ounce.

On the economic front, the Labor Department announced that the economy added 431,000 jobs last month. Economists were expecting a gain of 540,000 jobs. Private employers added 41,000 jobs, down from 218,000 in April and less than expectations of 180,000, while the government hired 411,000 temporary census workers. Meanwhile, the unemployment rate dipped to 9.7% from 9.9%.

In earnings news, shares of SAIC (SAI) inched down -0.2% after the company’s Q1 EPS topped estimates by a penny. For the quarter ended April 30th, net income was $125 million, or 32 cents a diluted share, up 8% from $116 million, or 29 cents a share, last year. Analysts were looking for EPS of 31 cents. Revenue edged up 1% to $2.69 billion. The provider of defense and homeland security solutions reaffirmed its full-year forecast of a 8-14% rise in EPS from continuing operations on a revenue increase of 3-6%. A total of 5 pro investors counted the stock among their top 15 holdings at the start of Q2, while 61 tickerspy members included the stock in their portfolios.

Ulta Salon, Cosmetics & Fragrance (ULTA) saw its shares slip -3.1% despite posting a better-than-expected Q1 profit and providing strong Q2 guidance. For the first quarter, the company earned $13.7 million, or 23 cents per share, up from $4.9 million, or 8 cents per share, a year earlier. The Street was expecting EPS of 19 cents. Sales jumped 19.1% to $320.2 million. For Q2, Ulta anticipates EPS in the range of 19-21 cents on revenue of $311-$317 million, compared with estimates of 15 cents on revenue of $308.1 million. A total of 2 pro investors counted the stock among their top 15 holdings at the start of Q2, while nearly 50 tickerspy members included the stock in their portfolios.

Shares of Quiksilver (ZQK) climbed 2.2% on news the apparel retailer’s Q2 results topped analyst expectations. For the period ended April 30th, the company posted a profit of $9.4 million, or 7 cents per share, up from $2.8 million, or 2 cents per share, a year ago. Adjusted EPS was 12 cents, which soundly beat the 3-cent consensus. Revenue grew 5% to $468.3 million. Looking forward, the retailer guided for Q3 EPS growth in the low single digits with revenue down in the low teens on a percentage basis. Analysts are looking for Q3 EPS of 5 cents on revenue of $483 million.

Eye care and surgical product maker The Cooper Companies (COO) said its Q2 profit fell due to one-time charges and a legal settlement. The company also boosted its FY10 outlook. For the quarter, Cooper earned $4.5 million, or 10 cents a share, down from $24.6 million, or 54 cents a share, last year. Adjusted EPS came in at 61 cents, matching estimates. Revenue was up 11% to $289.3 million. For FY10, Cooper expects EPS in the range of $2.50-$2.60, up from a prior view of $2.45-$2.55 and bracketing the $2.55 consensus. The company expects FY10 revenue of $1.11-$1.17 billion compared to estimates of $1.14 billion. The stock lost -2.0%.

Tags: COO, EDV, Hedge Fund and Institutional News, SAI, ZQK