First and foremost in today’s market update, I want to fill you in on our AllianceBernstein (NYSE:AB) trade.  I briefed you on AllianceBernstein, the $2.7 billion New York-based asset manager, on Monday, saying that while I like this stock, you should hold off on buying shares for now.

Sure enough, shares have fallen around 2.5% this week. That gives us a slightly better buying position when we do get into shares – but I’m continuing to hold off for a more bullish “buy” signal. I’ve completed my due diligence on AB, and I’m excited about its valuation and growth potential. You’ll get my analysis when I recommend buying shares – hopefully next week.

Bad Economies = Higher Profitability?

Shocking though it may seem, Wall Street loves to punish good companies in 2010. How else can you explain the fact that despite more than three-quarters of companies beating earnings for Q2, share prices have continued to tumble this earnings season?

Poor economic data continues to be the culprit. But while jobs numbers and housing starts hold stocks’ prices down, companies are continuing to deliver strong performance numbers this month.

One trend that I’ve noticed this quarter is expanding margins – as economic events impact sales, firms are generating income growth by improving efficiency and cutting excessive spending. That’s an attractive change, because it means that we’re essentially being offered leaner, meaner equities in today’s market at lower prices than before. Value investors should be getting excited here…

I’ve said it before that “the market can stay irrational longer than most investors can stay solvent”. But old edict only goes so far – after all, we’re finally starting to see good GARP (growth at a reasonable price) plays once more, and keeping money off the table is a great way to guarantee that we’ll miss out. That shift was a big part of the reason we added Applied Materials (NASDAQ:AMAT) to our portfolio earlier this summer, and it’s an instrumental part of why we’ll soon be adding AllianceBernstein.

It’s important to remain cautious about what’s clearly a fickle market – but don’t forget that scores of stocks look fundamentally impressive right now.

NRG Buys Up Serious Assets

NRG Energy (NYSE:NRG) made the news this morning when it was announced that the power generation company would be buying $1.36 billion in generation assets from competitor Dynegy Inc. as part of the latter’s acquisition by private-equity firm The Blackstone Group.

The purchase is a good move for NRG because it provides 3,884MW of additional generation capacity from low-carbon plants at an average cost under $400/kilowatt. NRG expects that the transaction will immediately increase free cash flow and EBITDA numbers.

Computer Sciences Increases Profitability

Our computer consultancy play, Comuter Sciences Corporation (NYSE:CSC), announced earnings on Wednesday, delivering profits of 91 cents per share – a cent higher than expectations. CSC was another example of a company that’s improving efficiency to generate better earnings on flat revenues. That’s a very good thing.

The company maintained its strong EPS targets, and expects to book projects in excess of $18 billion for the 2011 fiscal year.

Watch out for a potential Rhino Alert for AllianceBernstein next week.

Cheers,

Jonas Elmerraji
The Rhino Stock Report

Four of our portfolio companies announced earnings in the last week or so, and all four beat the outlook expected by Wall Street analysts. First, we’ll take a look at earnings, then I’ll give you a preview of our newest watchlist play:

SPX Corporation (NYSE:SPW) announced earnings this past week, completely obliterating Wall Street’s expectations of 71 cent per share by delivering income of a full dollar for Q2 2010. Revenue numbers fell in line with expectations. Better still, management guided Q3 EPS in the $1 to $1.10 range, exceeding analyst expectations of 89 cents.

With a capital-heavy business model, SPX Corp. took some significant knocks in 2009 as revenues were slow to recover. The numbers announced by the company last week should start to accelerate this stock’s comeback.

Our wholesale power generation play, NRG Energy (NYSE:NRG) has been another stock that’s underperformed the broad market as commodity costs, expensive capital expenditures, and stifled energy demands impacted its financials. Again though, the company surprised analysts with second quarter earnings numbers of 81 cents per share – nearly twice estimates of 42 cents. As with SPX, NRG Energy’s revenues fell largely into line with estimates.

That phenomenon of increasing income and in-line revenues is worth watching – after all, it means that efficiency is improving and margins are widening, two factors that could suggest that a more bullish model is needed for these firms. Ahead of earnings numbers, RBC analysts raised their view of NRG’s shares to outperform, with a price target of $30.

Becton, Dickinson (NYSE:BDX) is another stock that pleased investors with its quarterly numbers, the medical supply giant announced earnings of $1.30 per share. Analysts had hoped for $1.24.

Becton is one of the three stocks that’s currently in negative territory for our Rhino Stock portfolio (coincidentally, NRG is another), but that could soon change. Becton has been getting increasing attention lately, including  an East Coast Asset Management research report on the stock. The hedge fund thinks that Becton investors could see a double-digit upside in the next few quarters thanks to a deep economic moat and substantial misgivings about the stock’s real performance.

I’m inclined to agree (you can download the research report here).

Our best performer for 2010, Berkshire Hathaway (NYSE:BRK.B) announced its earnings numbers on Friday, outpacing earnings expectations despite some derivative losses for the second quarter. While the effects of derivatives were negative, the company saw improvements across most of its business lines, and I’m pleased to see that the rally shares have seen this year are being backed up by fundamental performance.

We’re currently up 21.6% on the position since adding the stock to the Rhino Stock Report’s portfolio in January.

Adding a Financial Stock to The Watchlist

Despite significant economic improvements since 2008, many investors continue to eschew the financial stocks. That’s a big mistake when you consider the fact that many of these firms are still enjoying booming business. But while investor pressures hold shares down temporarily, others could be enjoying a great time to pick up shares.

That’s the case with AllianceBernstein (NYSE:AB), a $2.8 billion asset manager that I’m adding to our Rhino Stock Report watchlist this weekend.

AllianceBernstein invests on behalf of institutional and retail clients in efforts to generate the highest returns possible. In exchange, the company earns asset management fees. But AB isn’t your typical money manager. The company’s massive value prospect, massive dividend, and unique business structure make it a potentially lucrative opportunity right now.

In fact, my valuation model places this stock at between a 16% and 70% discount to where its share prices should be. That’s a disparity that likely won’t last long as AB continues to generate substantial income…

Not so fast – don’t buy shares of AllianceBernstein just yet. I’m completing my due diligence on this stock this week… I’ll have my detailed report (along with buy and sell target prices) to your inbox later this coming week.

Until then, watch out for earnings of Computer Sciences Corp. (NYSE:CSC) on August 11.

Here’s an updated chart for the S&P 500:

The S&P broke above two key resistance levels this week – the blue downtrending trading channel and its 50-day moving average. With this broad index above those two key levels, the market should start to give us some semblance of stability in the near term, particularly if economic news stays relatively muted.

But don’t be lulled into thinking that the worst is over. Stocks still need to clear the 200-day moving average (thin red line) before I’d be willing to believe that we’ll see another meaningful rally. That said, investor sentiment seems to be turning to stocks once again, and where investors see value price appreciation usually follows.

Frankly, added attention on stocks is a good thing – I’ve been concerned for a little while now about the potential of a bubble in bonds. Investors have flocked to the bond market in the last couple of years in an attempt to move from apparently risky investments to less risky ones… but with a slew of problems in sovereign, state, and municipal budgets right now, the potential for government defaults is relatively high.

Here in the U.S., the fact that the ratings agencies continue to rate shaky state and city debt at investment grade levels is something to watch out for. Not all bonds will be impacted by the bubble – corporate borrowings are likely to remain robust after the scrutiny investors put on their equity issues.

But I’ll be watching this issue pretty closely for the rest of the year. States and municipalities need to get their finances in order ASAP.

In the mean time, here’s an update on a few economic items…

Financial Reform: The Senate passed H.R.4173 earlier this week – and President Obama signed it into law on Wednesday. The act ushers in a number of financial reforms and consumer protections, most notably increased regulation and oversight on consumer financial products. Ultimately, though, the new law lacks many important features. It’ll have minimal impact on Wall Street.

Earnings Season Earns Respect: Despite a somewhat inauspicious start to earnings season last week, this week’s accelerated announcement pace has impressed investors. That should be a relieving fact for Main Street, because it means that the private sector is still seeing strong performance in 2010. We’ll see what this means for our portfolio companies…

The Happier Housing Market: Housing numbers released yesterday beat expectations, showing slight growth in home sales and residential real estate prices. These metrics lead the economy right now, so good performance is a great sign for stocks.

Applied Materials Restructures Its Energy Business

Our newest position, Applied Materials (NASDAQ:AMAT), announced Wednesday that they’d be undergoing restructuring for their energy and environmental solutions business and revised their Q3 outlook as a result.

Typically, restructuring is sort of like ripping off a band-aid: it hurts at first, but it ultimately a good thing. In Applied’s case, however, restructuring shouldn’t be as painful as Wall Street expects. Solar has been a thorn in Applied Materials’ side for the last few years as sales stalled and sentiment waned. That’s one of the things I wrote to you about when I recommended the stock last month. But in 2010, things look to change thanks to increased emphasis on solar technology and alternative energy.

Applied is trying to accelerate that growth by trimming underperforming parts of its nascent solar business. Ultimately, the company thinks that they’ll be able to save $100 million annually with the restructuring.

Despite the impressive savings, these changes won’t impact AMAT in a bad way this year. Revised Q3 guidance puts expected numbers on the higher end of the company’s previous target. That’s excellent management at work.

Upcoming Earnings

Becton, Dickinson (NYSE:BDX) is set to announce earnings next week on July 29. I’ll keep a close eye on how our second play of 2010 lives up to expectations.

But stocks could be setting themselves up for a new rally – if a few stars can align.

The old adage goes that everything is priced into the market. From the moment news is disseminated to the public, it’s analyzed and dissected to form the basis for investment decisions.

It’s no shock then that Europe’s debt problems have hurt stocks here at home. The declining value of the Euro means that one of our biggest trading partners has less buying power – and as a result, U.S. companies who sell products across the pond are seeing the valuations of their Euro-denominated operations fall hard.

But real economic news isn’t the only reason stocks have lagged this year. Estimates – also known as best guesses – play a big role on Wall Street. And like news, they’re used by retail investors and institutions alike to make investment choices.

That means that when analysts expect a company to report earnings of $1 per share, those earnings are priced into the stock before the company announces its results.

Wall Street estimates, though, aren’t always spot on; that’s where earnings season volatility comes in. When a company delivers numbers above estimates, the stock jumps – after all, the lower numbers had already been priced into it. When they underperform estimates, the opposite happens.

So it’s no surprise that in 2009, when the bears were out in full force and analysts were sticking to conservative estimates, companies continually outperformed the Wall Street’s best guesses and stocks rallied.

In 2010, though, analysts have adjusted their models. They realized that their numbers in 2009 were too conservative – and they’ve succeeded in completely overshooting earnings on scores of key companies in the past quarter.

Stocks have tumbled as a result.

But a technically oversold market and increasingly bearish stance from analysts look to turn that around this quarter. With stocks trading at levels not seen since last October, investors are realizing that a bullish bounce is eminent. More often than not, those sentiment readings are a self-fulfilling prophecy.

But while a short-term rally would be welcomed, for it to be sustainable it’ll need the economic fundamentals to back it up… Here’s a glimpse at what’s going on.

Rates Resting: Yesterday the Bank of England and European Central Bank announced that rates would remain unchanged – as expected. The decision suggests that the situation in the PIIGS countries is stabilizing.

Retail Sales Sour: June’s poor same store sales from major retailers this week drove home the fact that consumer spending has pulled back from the frenzy of 2009. Among the worst performers were mall apparel retailers. These numbers need to improve next month for any sort of sustainable jump in stock prices.

Jobs Continue to Be Less Bad: Jobless numbers were also announced yesterday, with both initial claims and continuing claims ringing in under estimates. But there’s still much further for these metrics to fall before we can celebrate.

Commodities Go Strong: Commodities – like crude oil and gold – continued to perform well in the increased volatility we’re seeing right now. The dollar is also a strong performer – if only thanks to investors’ exodus from the stock market right now.

Could Our Computer Science Play Double Our Money?

But not all of the news on Wall Street has been depressing – Computer Sciences Corporation (NYSE:CSC), the IT stock we picked up back in March 2009 for $34.19 per share, has been the topic of discussion lately…

Rumors are going around that defense industry giant Lockheed Martin (NYSE:LMT) could be interested in acquiring CSC for a price in the low $60s. The acquisition would make sense – Lockheed has been working to build its IT offerings and diversify away from the defense contracts that have built its nearly $30 billion business.

A buyout would be a coup for Rhino Stock Report readers who got in back in March – offering nearly double our money. But those rumors are just rumors for now, and I’m not recommending you increase your stake at current prices. I’ll keep a close eye on these developments.

Applied Materials Breaks Support
I’d held off recommending shares of Applied Materials (NYSE:AMAT) for a while, hoping to find a more attractive entry point. While it looked like that time had come on June 23, when the Rhino Stock Report took an official position in the semiconductor company, shares broke through support following a nasty week of European debt news and a bearish turn on solar stocks…

Shares look like they’re continuing their descent – but not for much longer. If you haven’t entered this stock already, I’d recommend buying shares on the first signs of strength. If you’re a big fan of Applied Materials, consider doubling down.

Becton, Dickinson’s a Buy
Becton, Dickinson (NYSE:BDX) hasn’t been a particularly strong performer this year, falling more or less in line with major market indexes like the S&P 500. But I’m still bullish on this stock and Main Street is catching on – a recent Barron’s profile on the company suggests that a 40% upside is in place.

If you haven’t picked up shares of Becton yet, now would make for a good time to do so.

Berkshire Hathaway Boasts 31% Outperformance
We’re up more than 20% on Berkshire Hathaway (NYSE:BRK.B) as of this writing – a position that’s outperforming the broad market by around 31% as of this writing. If you bought back in January when I recommended the stock, continue to hold onto it. We got into shares of Warren Buffett’s company at a significant discount thanks to the market’s mispricing of Berkshire’s split… if you missed it, I’d recommend investing elsewhere for now.

NRG Steps Up Acquisitions
Our wholesale power generation play has been on a shopping spree, buying up key subsidiaries at discount prices. That’s a strategically significant phenomenon because it suggests that NRG Energy (NYSE:NRG) is well on its way to rounding out its energy offerings this year. With headwinds turning to tailwinds for alternative energy, NRG is a smart stock to be in right now. If you haven’t bought shares, consider buying at current levels.

Sell Off Your Bear Market Hedge
I wrote to you back in January 2009 about the ProShares UltraShort S&P 500 ETF (NYSE:SDS) as a potential hedge against a “W-Shaped” market recovery. I qualified that article by saying that SDS should only be held in the very short term because of tracking errors inherent to leveraged ETFs… but I never issued an official sell alert on the fund.

That’s in part because I talked about SDS without knowing how exactly to treat an investment where I specifically said. “This isn’t a Rhino Stock.”

But I think that the fund’s performance in the Rhino Stock Report portfolio is causing confusion, so I’m officially selling it today and putting it in a “Special Situations” portfolio on our Members Only website.

Hold Onto The Big Gainers For Now
The rest of the stocks recommended in the Rhino Stock Report before 2010 should be pretty sizable gains for you right now. As such, I’m recommending that you continue to hold them, but don’t recommend initiating positions if you haven’t already. With gains like 55% in J.M. Smucker (NYSE:SJM) as of this writing, they’re not the values they once were – but they should still provide performance for us during the rest of 2010.

Have a good fourth of July weekend. I’ll be back next week with a more traditional market update.

Cheers,
Jonas

We’ve been holding off adding Applied Materials (NASDAQ:AMAT) for the last several weeks in hopes that we’d be presented with a more attractive entry point. That price level has materialized, and now’s the time to add this semiconductor giant to our portfolio.

But first, I want to tell you why this stock fits into our investment mold.

We’ve talked a lot about Applied Materials lately, but most recently it’s been in the context of stock charts and timing. While charting is an exceptionally valuable tool for timing entries and exits, it’s never the sole basis for investing in a Rhino Stock – instead, the fundamentals are key.

And in Applied’s case, those fundamentals are duly impressive. From the emergent technologies coming out of its research and development department to the consistent revenue streams from Applied’s semiconductor equipment business, this firm has the value case and growth prospects to warrant a significantly higher share price.

The Leader in Nanomanufacturing

In essence, Applied Materials is one of the biggest players in the nanomanufacturing market – a fancy word for the business of building small.

The company’s core business includes fabrication tools for chip manufacturers, components for flat-screen displays, and even solar panel manufacturing. Through significant growth since its founding in 1967, Applied has carved itself a large competitive advantage over its competition. That growth has been fuelled by huge research and development spending – around $1 billion annually – spending that isn’t easy for competitors to compete against. The end result is a store of intellectual property that spans across Applied Materials’ businesses and gives the company one of the biggest reaches of any technology firm.

Today, Applied is the biggest supplier to the global semiconductor industry – a $17 billion market that the company currently controls more than 15% of according to a recent study by Gartner. And with customers like Intel, Toshiba, and Texas Instruments, it’s no surprise that this stock has built itself an unmatched reputation in semiconductor fabrication.

In fact, if you’re reading this Rhino Alert on a flat-screen monitor – or using nearly any electronic device, for that matter – there’s a good chance you’re making use of Applied’s technology.

Applied’s position in semiconductors is impressive, but the further reaching implications shouldn’t be missed… With a number of breakthroughs forthcoming on the semiconductor front, the industry is on the verge of significant growth; and increasingly complex and production-intense chip technologies translate into more profits for our pick.

That reach also makes for higher switching costs for its installed base. When a major chipmaker like Intel uses Applied Materials’ processes or technologies, it’s extremely expensive and time intensive to switch to a competitor’s offerings.

That chipmaking prowess has been transferred over to Applied’s flat-panel display segment in recent years. Because many of the technologies used to fabricate semiconductors are similar to those used in the flat-panel manufacturing process, Applied was able to hit the ground running with its entrance into this high-growth segment of the tech market.

Of course, flat-panels haven’t been the only area where Applied Materials was able to apply its existing intellectual property to new businesses. Starting in 2006, the company began making acquisitions for its burgeoning solar panel business. Today, its solar photovoltaic (PV) segment is developing some exciting new high-efficiency panels that stand to make solar energy commercially viable on a large scale.

Despite all of the prospects that Applied Materials is enjoying, this stock has faced some serious setbacks in the last couple of years. The semiconductor and flat-panel industries have been on a cold streak of late, hampered by excess inventory and significant declines in consumer spending. Likewise, solar has lost some of the cachet it enjoyed in late 2007 as efficiency concerns and high capital requirements scared potential customers away.

But economic tailwinds are starting to form in all three segments as consumer spending begins to perk back up and controversy over fossil fuels grows – especially in the wake of the Deepwater Horizon spill in the Gulf of Mexico.

Financial Stability in Tough Times

Even though Applied Materials has faced challenging economics in the last year, the company’s strong financial position has kept the stock from floundering. At present, Applied’s balance sheet is impressive – with more than $3.6 billion in cash and only $207 million in debt right now, the company has more than enough liquidity to battle through less than ideal markets.

From a profitability standpoint, Applied has historically been one of the best companies in the industry. That changed in fiscal 2009 when the company posted a loss of 23 cents per share versus profits of 97 cents for the same quarter in 2008. Not surprisingly, Applied’s poor performance was the result of slowed revenues for the year amid billion-dollar R&D costs. In the long-run, keeping research and development spend high should pay off for Applied’s shareholders even if it led to short-term losses.

This year, the company’s on track to deliver substantial revenue growth.

That said, the factors that bode well for a resurgence in Applied Materials’ share price have yet to take effect in any meaningful way – that makes right now an excellent time to become a shareholder in this tech giant. I’m adding Applied Materials to the Rhino Stock Report’s portfolio at its current market price. That should be reflected online in our live portfolio by the day’s end.

But while I hack away at AMAT’s financials, I wanted to fill you in on another of our portfolio position, J.M. Smucker (NYSE:SJM)…

Smucker announced earnings of $1.07 per share, blowing away Wall Street’s expectations of 80 cents. Revenue too increased 10% to $1.1 billion, suggesting  that the company’s consumer staple status is paying off in an otherwise volatile market.

Shares of the company are up more than 11% in the last five trading days, bringing our total gain to 61.42%. Continue to hold onto your shares.

We’ve been sitting on our Applied Materials (NYSE:AMAT) play for an agonizing month and a half now. When I brought the semiconductor stock to your attention in a weekly alert, I let you know that while I liked the stock’s fundamentals, now didn’t pose an attractive time to add a position to our portfolio. That’s proven to be the case.

Shares of AMAT are down 12.19% since I first mentioned it.

Volatility has also re-entered the market in a big way. With the Eurozone debt contagion only now starting to make sense to the markets (more on that in a minute) and economic fundamentals at home, it’s no surprise that stocks have made large moves — in either direction.

But back to patience… In the investing world, rule-based decision making is king. Investors who follow a predetermined trading plan (provided it makes sense) generally end up on top. It’s only when we eschew our trading precepts and let fear drive us that losses are guaranteed.

Still, there are powerful forces working against the few investors who want to follow the rules these days. Turn on the financial media on any given day and a bevy of “analysts” and “commentators” will be more than happy to give you so-called free advice on a minute-by-minute basis. From their perspective, the only way to make money is by trading constantly and quickly.

That’s good advice if you’re an expert prop trader with the resources of a multi-million dollar firm behind you, but as an individual investor, it’s a recipe for disaster.

When I started the Rhino Stock Report nearly two years ago, I had one goal in mind: to deliver gains in any market. So far, we’ve been pretty successful at that, but only because we followed the pre-determined rules and remained willing to sit out if things got volatile.

As investors, we can’t control the market’s short-term swings. So while we may see value in a particular company, the old adage stands true that, “the market can remain irrational longer than you can stay solvent.”

The difference between buyer’s anxiety and a real trading plan is understanding which conditions trigger our entry back into equities. Take a look at AMAT’s chart below:

This stock remains stuck below two strong overhead support levels — and until shares prove otherwise, there’s no reason to believe the short-term downtrend will reverse itself just because Applied Materials is a “fundamentally sound” company. The trading plan right now for this stock is to wait for a breach of the 200-day moving average before adding the position.

Most of the market is in a similar state right now, so few other stocks offer better buying prices.

An Update on Some Open Positions

I wanted to provide some quick guidance on our open positions from 2010 (and late 2009). On average, our plays are beating the S&P 500 by around 3.55% this year — a decent return for six months, but still far from the performance we saw in 2008 and 2009.

For new subscribers, both NRG Energy (NYSE:NRG) and Becton, Dickinson(NYSE:BDX) remain in buy range (You can get the analysis on each by logging into rhinostocks.com). I’m leaving Berkshire Hathaway (NYSE:BRK.B) as a hold right now, since we’ve yielded 12.6% on the stock already since January.

A Return to Regularity

Over the past couple of months, the Rhino Stock Report hasn’t been as regular as it should have been. Today’s Friday Market Update marks a return to regularity. Expect weekly market updates and as-needed alerts going forward.

This week, investors have been experiencing an eye opening pullback at the heels of more drama in the Eurozone over Greece and its fellow PIIGS countries, Portugal, Italy, Ireland, and Spain. But when can we expect the slide to stop? Here’s a peek at what the S&P 500 looks like right now:

The index hit a top at 1220 back at the end of April, and it coming back down quickly toward a potential support level at 1150. Watch that level very closely today — if shares don’t finish at or above that rough level (the horizontal blue line above), we can expect to see the pullback continue perhaps as low as 1050 before it gets another good chance to hit the brakes. That said, with momentum veering down toward oversold right now, I think it’s likely we’ll see stocks cool their downward pressure today and tomorrow.

But the technical charts are hardly the only factor that’s moving stocks right now…

Fundamental data are going to be the real drivers for any sort of market movement we get in the next couple of weeks. Earnings are making a big impact on the numbers. Economic updates — like tomorrow’s jobs report — will have a huge effect on the numbers. And, of course, the situation over in Europe will continue to push the market to its whims.

For the past couple of weeks, investors have been concerned that the rally we’ve been enjoying for the last year and change was coming to an end and we’d be headed back for a second dip of recessionary price action.

While those fears are certainly warranted, I don’t believe that we’re seeing any strong signs of serious correction as of yet. That said, I’ll be watching the market closely over the next few days, keeping you informed if I believe it’s time to start positioning our stock portfolio for downside risk.

Like I said before, I’d hoped that today would be a buy alert. A week or two ago, I sent out a Watchlist with five potential Rhino Stock plays. Since then, I’ve narrowed it down to one stock that I’m bullish on this month, Applied Materials (NASDAQ:AMAT).

Obviously, we won’t be adding any positions to our portfolio until we have some notion of where the market’s headed in the short-term. Like I’ve said time and again, even the best fundamental plays can get shellacked in the face of an outwardly bearish market.

I’ll send you detailed analysis on the company when we’re finally ready to pull the trigger.

Until then, keep a close eye on where the S&P ends the day. A closing level below 1150 doesn’t mean you should liquidate your 401(k), but it does mean that I’ll be sending you a new alert with more details on the implications of that moment.

First, a look at the broad market…

The big news on Friday was the SEC’s decision to initiate fraud proceedings against Goldman Sachs, arguably the most well connected firm on  Wall Street. While Goldman had been posturing for a more publicly favorable position in the past few weeks (after taking flak for overpaying employees and profiting from the mortgage meltdown), the SEC’s suit alleges that the firm knowingly packaged shaky mortgages and sold them off to clients who trusted the firm’s triple-A rating.

Or, as the Atlanta Journal-Constitution’s Jay Bookman so eloquently put it:

Described another way, [Goldman's institutional clients] handpicked sick, diseased pigs to be made into sausage, then bet millions that the resulting sausage would make people sick. Goldman, for its part, made the poisoned sausage (and got paid), sold that sausage to its own unwitting customers (and got paid again), and. like [those big clients], bet millions that those customers would get sick (and got paid yet again).

That downward market pressure provided investors with the worst single-day loss in stocks since February… but Friday’s slide was still tame compared to the rally we’ve been enjoying in 2010. With earnings season upon us once again, company fundamentals and economic data are going to drive the market, and we’ll be stuck along for the ride for better or worse.

That’s why it’s so significant to stick with companies that are fundamentally sound in this market environment. After all, we can’t count on a rally scenario forever…

Watch This Watchlist

In the last few months, we’ve seen our Rhino Stock plays perform exceedingly well — the majority of our open positions are up double-digits. Now, it’s time to take a look at our next profitable play. These five stocks present a strong mix of growth and value right now, but we’ll likely wait until later-on in April to pull the trigger on an actual trade — earnings season and Goldman fallout add too much unnecessary risk for right now.

1. Applied Materials (NASDAQ:AMAT)
Applied Materials provides nanomanufacturing products for the semiconductor industry. With chipmakers still reeling from the economic slowdown, this stock is still trading at a discount to what I believe to be a reasonable valuation. Coupled with some of the groundbreaking microchip technology this company is developing, it could make a welcome addition to the Rhino Stock portfolio this month.

2. Abbott Laboratories (NYSE:ABT)
While Abbott Labs has made a name for itself in the pharmaceutical and diagnostic products market, I think that this company’s consumer nutrition line is even more compelling. With high-margin niche brands like EAS Myoplex, this stock should continue to see segment growth as Americans focus more on fitness.

3. Cemex SAB de CV (NYSE:CX)
Don’t underestimate the growth potential of Mexican concrete maker Cemex — as one of the largest building materials makers in the world, this company stands to reap the benefits of astounding growth in the emerging market.

4. iRobot (NASDAQ:IRBT)
I’ve been a fan of iRobot for a while now. While the company’s Roomba product line made the stock a household name, it the burgeoning defense contracting business that has my interest for 2010. Still, this small-cap could be too prone to market whipshaws for our purposes.

5. Paychex Inc. (NASDAQ:PAYX)
This payroll service provider has managed to carve out a profitable niche for itself — one with high exit costs for customers. As Paychex expands its portfolio of services, it should see sizable revenue increases with minimal marketing costs.

With the earnings creep sneaking up on us, I’d like to make a move on one of these positions here in April. The technical outlook for stocks coming into next week will likely dictate just how soon we pull the trigger. Keep an eye on your inbox on Friday for next week’s Market Recap.