I’m completing my due diligence and analysis process for the newest Rhino Stock play to hit our portfolio – more on that in a bit – so, with that in mind, I’m keeping this week’s market update short and sweet…

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.

Earnings season’s finally well underway – literally hundreds of companies announced their quarterly results this week, adding fuel to an already volatile market. But while Wall Street’s hemming and hawing continues to be a major issue for fundamental investors, early signs are pointing to some stabilization in the financial markets.

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.

To say that the first half of 2010 set the year with an inauspicious start would be an understatement. The broad based S&P 500 index – which tracks the moves of the biggest 500 stocks on Wall Street – is already down nearly 4% since January… And nearly 12% since April.

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.

An IPO conference at the NYSE on Friday kept me from sending you a market recap last week… Today, I wanted to make up for that by going over a number of our open positions – and answering the common questions of whether now’s still a good time to buy shares.

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