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January 20, 2012 at 12:09 PM EST
Mixed Market News Explained
Negative data on housing starts doesn't derail homebuilders, positive earnings push tech stocks higher, and gold miners look more tempting.

Up and up and up. Where does it stop? Stocks kept climbing again yesterday, with the Dow tacking on another 45 points to post a fresh six-month high.

I’m not one to complain when my brokerage balances are going up. Still, I have to wonder how much longer this Yellow Submarine party can continue.

Yesterday, before the opening bell, the Commerce Department reported housing starts for December fell 4.1%, capping the worst year ever for construction of single-family homes. The December count came in well below what economists had projected.

Yet the SPDR S&P Homebuilders (NYSE:XHB) ETF, which tracks the homebuilder stocks in the S&P, touched a new 52-week high yesterday, up 56% from its October low. UBS (NYSE:UBS) downgraded the homebuilder stocks yesterday, following on the heels of Goldman Sachs (NYSE:GS) last week, but the stocks rose anyway.

Go figure.

At least we can say that three of my tech companies reported honest-to-goodness healthy earnings after the close: IBM (NYSE:IBM), Microsoft (NASDAQ:MSFT) and Intel (NASDAQ:INTC). If you own any of this trio, you should be very happy. Hold onto them, but don’t add to your stake just now — they’re all well above my buy limits.

Gold mining shares, on the other hand, are looking more and more tempting. It’s now pretty obvious that the Midas metal formed a significant bottom around $1,523 an ounce during late December.

However, mining stocks have lagged the subsequent rally. Relative to bullion, in fact, the widely followed Gold Bugs Index of gold shares sank yesterday to its lowest level since March 2009.

Yes, I’m aware that mining poses certain risks that bullion doesn’t: Bad weather, equipment failure, surging energy costs, lower-than-expected ore grades, labor unrest, government interference via taxes and regulations, etc.

But a rising bullion price covers a multitude of these sins. At 8 times estimated 2012 earnings, a business like Barrick Gold (NYSE:ABX) would be cheap even if it were a stodgy, rusty industrial outfit. Which, of course, it isn’t!

So, you don’t have to be a gold bug to like Barrick. All you need is an old-fashioned nose for value. Buy ABX at $48 or less. From here, I’m projecting a total return (dividends plus capital appreciation) of 30% or more in the next 12 months.

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