Today's 3 Best Stocks in the S&P 500

Today's 3 Best Stocks in the S&P 500

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

Optimists were back out in full force today, with the brunt of earnings season and generally positive jobs data in their sails helping to push the broad-based S&P 500 higher, and reverse most of yesterday's losses.

The big boost obviously came from earnings reports, which have, for the most part, been better than expected. Like we've witnessed in previous quarters, profits have handily topped estimates, whereas revenue figures have been more hit-and-miss. While this is great news for the bulls, I have to take the skeptics' viewpoint, and wonder if the market isn't getting a bit ahead of itself given the lack of organic revenue growth, which is being disguised well by cost cutting and share repurchases.

Also pushing the S&P 500 higher was a favorable weekly initial jobless claims report that showed a reduction of 12,000 from the previous week to a seasonally adjusted 350,000. Falling initial claims is a good sign, as it demonstrates that people who want work are finding work, and it should ultimately lead to a falling unemployment rate. Let's recall that September's unemployment rate already fell to 7.2%, the lowest level in six years, so we're definitely seeing an improving labor picture.

By day's end, the S&P 500 had digested a full plate of earnings news and this jobs data, to advance by 5.69 points (0.33%) to close at 1,752.07 -- the ninth gain in the past 11 trading sessions for the iconic index.

Topping all gainers on a very busy day for earnings reports was homebuilder PulteGroup , which handily surpassed Wall Street's expectations with its third-quarter results, and rose 7%. For the quarter, Pulte reported a 21% increase in revenue, to $1.58 billion, as EPS improved to $0.45. Comparatively, Wall Street was looking for Pulte to report just $0.36 in EPS on $1.48 billion in sales. Perhaps most exciting of all, the average selling price of its homes jumped 11%, to $310,000. Pricing power is everything for homebuilders, so this is clearly great news. In response to Pulte's improved results, its management team also boosted its land investment by $200 million, to $1.6 billion in 2014, as it sees the weakening in homes sales over the past couple of weeks as nothing more than temporary. I'm not as certain I agree with the aggressiveness of this move, but only time will tell if it plays out well for Pulte.

Keeping with the earnings theme, biotechnology juggernaut Alexion Pharmaceuticals added 6.4% after also topping estimates with its third-quarter earnings results. The maker of Soliris, the most expensive drug in the world, delivered revenue growth of 36%, to $400.4 million, as adjusted EPS jumped to $0.83, from $0.60 in the year-ago period. Wall Street had been forecasting just $395.3 million in sales on a $0.79 per-share profit. Looking ahead, Alexion bumped up its full-year EPS forecast to a range of $3.02-$3.04 from its prior guidance of $2.97-$3.02, and moved the midpoint of its revenue forecast up $12.5 million. Clearly, Soliris' dominance isn't in question; however, I still remain skeptical of Alexion due to its lofty valuation (35 times forward earnings), and the fact that practically its entire pipeline is dependent on one drug. We've seen too often this year the potential perils associated with relying on just one drug, and that's a risk I don't think is worth taking at these levels.

Finally, for-profit educator Apollo Group again roared higher, this time gaining 5.4% after research firm Stifel Nicolaus raised its rating on the company to buy, from hold ,with a $30 price target following yesterday's market-topping fourth-quarter results. I believe this is a perfect reminder as to why analyst ratings can sometimes be silly, and should often be taken with a grain of salt. It essentially took a 30% increase in Apollo's stock for Stifel to look back and adjust its ratings up from hold. In other words, Stifel did a really good job of telling us what happened -- rather than what's going to happen -- which is what the market and investors care about. As for me, I see little reason for Apollo to be heading higher given the ongoing enrollment exodus at the University of Phoenix. Sure, costs are being cut dramatically, but there's no organic growth to be found here.

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