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.

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.

The S&P 500 has been behaving well – relatively. Since its latest bottom on March 9, it’s done a good job of pushing upward 26.6%. Since last week’s recap the S&P is up a noticeable 4.9%. But the question now is whether the trend will continue…

If you take a look at the chart above, the S&P is rising, but it’s curving – meaning that the rate at which it’s moving it beginning to taper off. That’s somewhat disconcerting for investors who are going long now. What’s important to note is the fact that the tapering we’ve seen over the last week could just be the market consolidating – only one day closed lower than the previous this week, and volume stayed consistent: that’s a good sign.

Another good sign is the bounce the market made around the end of March. The S&P hit its 50-day moving average (the graph of its average price over the trailing 50 days), and bounced off – that’s a bullish signal that indicates investors aren’t willing to part with stocks below that level. For now.

It’s Earnings Season

Part of the reason that the market has been up so notably this week is because it’s earnings season. As companies start to let investors know how the first quarter of 2009 treated their corporate coffers we’re going to be able to get an idea of just how much longer we’ll be talking recession. So far, it’s been a mixed bag.

Early in the week lower retail sales pushed the market down despite companies like Johnson & Johnson and Goldman Sachs reporting better than expected earnings on Tuesday. And yesterday beleaguered bank JP Morgan delivered record-breaking revenues. Not everyone beat analyst expectations, though – big names like Intel and Southwest Airlines missed their numbers, and their stocks tumbled as a result.

Watch the Rhino Stocks

The Rhino Stock Report’s portfolio is doing very well right now. This week, our stop loss on j2 Global Communications (NASDAQ: JCOM) triggered, selling the position off at a 40% gain.

At present three of our remaining open positions – EMCORE (NYSE: EME), Iconix Brand Group (NASDAQ:ICON), and Computer Sciences Corp (NYSE: CSC) are up double digits as of this writing.

Since the markets will be closed tomorrow in observance of Good Friday, our normal Firday market update is going out today. And since the markets seem to be moving based on fundamentals this week, I thought we should take a look at a market timeline instead of the traditional technical chart:

As you can see from the S&P 500 6-month chart above, there’s been a lot of news moving the markets in the past two quarters.

The S&P is up 2.28% since last Friday, pushed largely by Wells Fargo’s record earnings announcement today. While banking stocks have been out of favor for a while, the revelation that Wells expects to rake in $3 billion in profits sent the sector up in a big way.

The announcement managed to outweigh Wal-Mart’s flat sales in March.

It’s true that fundamentals seem to once again be taking their rightful place in moving this market. While last week’s market predictions still hold, earnings season is bringing a whole new element to how things should stand for the coming week.

Hopefully, investors are beginning to realize that contrary to popular belief, value investing isn’t dead (if you haven’t read my take on why, click here)… What could be better proof of that than our performance to date?

Position Update

At present, our open positions are up 10.18% on average, lead by j2 Global Communications (JCOM), up 43.3%, EMCOR Group (EME), up 23%.

SPX Corp (SPW) and Computer Sciences Corp (CSC) are up 16% and 14% respectively.

What even more exciting is the fact that our original Rhino Stock position, Iconix Brand Group (ICON) burst into positive gains today, currently up by 3.16%. This stock has been oversold on technicals, and is finally starting to regain ground.

Along with our closed positions, which average 24%, we’re looking at total returns of 15% since inception. During that same time, the rest of the market was down 12%.

That means we’re outperforming the S&P 500 by 27%. Let’s keep those returns coming in 2009.

Disclosure: All stocks mentioned are long positions in the Rhino Stock Report’s model portfolio.