 |
The market hasn’t pulled back very much.
But for selective investors, it’s a nice, little gift — opening up an opportunity to get BOTH quality AND good prices. And if it pulls back further, all the better.
Meanwhile, despite the decline in the markets last week — and despite any further declines — the Weiss Ratings are still very bullish, with over 50 percent of all U.S. stocks rated B- or above (in other words, “Buy”).
In fact, there has been an increase in overall bullish leanings in several sectors, but most of that came from stock price movement, as investors held fast on some pretty odd bedfellows.
Specifically …
* Energy and industrials fell less than the S&P 500’s 1.46 percent decline — at -0.45 percent and -0.92 percent, respectively.
* Telecom, one of the traditionally defensive sectors, actually went UPÂ 1.2 percent, while …
* Utilities and consumer staples, also defensive sectors, were essentially unchanged — down only 0.16 percent and 0.07 percent, respectively.
This is what we’d call a “barbell” formation. By that I mean the stocks most sensitive to economic dynamics hold up well right alongside those that are least sensitive to the economy.
Never mind that the traditionally defensive health-care sector and the more aggressive financials were laggards on the week! The fact is, with these last two, political considerations (or geopolitical, at the margin, for financials) are currently affecting investor appetites more than fundamentals.
 |
| Mobile device makers could see a growth trend that should last years if not decades. |
Here’s the key: There has been no fundamental turn in the economy or the investment climate. All we have are some random disconnects — stemming from the market’s volatility of the past few months, the herky-jerky economic data, and the reduction in earnings expectations in the short term.
But these should be cleared up by the time we get into the meat of first-quarter earnings season in about a month or so.
What happens in the meantime? It seems the holding pattern will prevail. In fact, I think this year’s earnings season is more important for understanding the likely path of earnings growth in 2014 than a first-quarter’s report has been in some time.
Mainly, this stems from the fact that inclement weather really did affect final demand for goods and services — both at the all-important consumer level as well as at the corporate spending level. But, also, a stronger dollar relative to other currencies presents a threat to overcome for some of the globally-focused firms we track with our Weiss Ratings.
So here’s what I see coming:
First, we’ll get a “reset” of earnings expectations from managements.
Second, some stocks could respond to the new information by pulling back.
Third, I think they will then advance in a sector-specific fashion as we move from spring into summer.
And all of these gyrations will be driven by what I consider to be the most important driver of the market: long-term earnings expectations/trends.
Where are our Weiss Ratings currently indicating opportunities?
Well, as I opined last week, I see more opportunities in the cyclical sectors than I do in the defensives, based on the Weiss Ratings overall bearing, and based on the sector rotation you often see as we enter another earnings season.
I see a particular opportunity right now in tech. This is where I feel earnings revisions (changes in expectations) will continue to be mild versus prior expectations in the sector. And this is where some of the recent selling has been the most indiscriminate, paving the way for some new buying.
This sets up great buying opportunities for a sector where the overall picture (fundamentals and technical — as revealed by the Weiss Ratings) is likely better over the long term than the short-term traders currently think.
Look, there’s no magic here. We have a discipline in the Weiss Ratings that imposes strict criteria, but allows for individual interpretation of trends — economic, financial, firm-specific — to help identify immediate candidates for purchase (or sale).
With the tech sector sinking almost half-again more than the market last week (down 2.27 percent, led by some of the behemoths of the space), I think that those opportunities are growing in number as we go along.
Huge global players in mobile device chips, like Qualcomm (QCOM), and mobile device flash memory component makers, like Sandisk (SNDK), merit Weiss Ratings of A+ and A, respectively.
So even if the market for communication devices hits a temporary rough patch, you can be certain that it’s still in a strong secular growth trend that should last years — if not decades. Pullbacks here could provide some of the most unique buying opportunities in the market today.
For the more adventurous investors out there, I would recommend looking into Skyworks (SWKS), an A-Rated, chip maker specializing in analog products (those that tie the real world into the digital one).
Its stock price recently flirted with a 10-year high, and is close to its post Tech wreck (early 2000s) rebound high. Fundamentals look solid, but its ties to automotive production may give some investors pause. I’m keeping my eye on it.
Best,
Don Lucek
P.S. For some Weiss Ratings on tech stocks, head on over to the
Money and Markets Facebook page.
