The rotational correction out of technology and international stocks and into domestic-related stocks is finally losing some steam. In today’s blog we’ll take a closer look at why I believe this is the case and what you can do to profit from these changing economic winds…
Since I recommend a number of technology stocks across all my services, I’ve been closely monitoring the situation with tech over the past few weeks. But I haven’t found one technology stock in any of my services’ Buy Lists that has had its earnings per share estimates lowered. So, in my opinion, the recent technology sell off was grossly overdone.
In fact, many on Wall Street agree with me. Thanks in part to a better-than-expected report from Broadcom Ltd. (AVGO) last Wednesday, which we covered in this blog here, many technology stocks rebounded strongly through the end of last week. Now, there’s still a good chance that some leading technology stocks will have to "retest" their recent lows, which is why some of my members are taking advantage of near-term strength to exit a few of their Buy List stocks.
Also, the rotation out of international stocks hit the skids, as criticism mounted for the tax reform bill. With the new tax reform bill, California, Hawaii, New Jersey, New York and Oregon residents with big itemized deductions, as well as high property taxes, are expected to be taxed significantly higher. That caused some doubt on the reconciliation of the House and Senate versions of the proposed tax reform last week.
In light of these recent developments, it’s important to remind you that a short covering rally is not a real rally. Poor fundamentals will eventually drag these stocks down again, while good stocks always bounce like fresh tennis balls. That’s why I remain focused on positive analyst earnings revisions and stocks with strong guidance for the fourth quarter. Since analysts have not been cutting their earnings estimates for our stocks, I look for companies with the strongest fourth-quarter results in January and February to bounce strongly in the New Year.
In fact, our Ultimate Growth Buy List stocks have already rebounded strongly. From last Monday’s close, our Buy List is up an average 2.4%, with several international stocks posting double-digit gains. The S&P 500, in comparison, was up only 0.6%. Given that our stocks have superior forecasted sales growth of 31.5% and earnings growth of 160.5%, I’m not surprised that our Ultimate Growth stocks led the stock market higher last week. And I look for this outperformance to continue as investors return to quality.