June sure did start off on the right foot! After the broader indices dropped 6.6% in May, the S&P 500 and Dow both climbed about 4.7% in the first week of trading in June.
Now, a lot of that selling in May was due to sensational headlines about trade wars, inverted yield curves and recessions, which had many believing that the “sky is falling.”
Well, as far as I’m concerned, not only is the sky not falling, but it’s sunny without a cloud in sight. It’s not just because of the impressive comeback from last week, but because of what lies ahead for stocks in June, especially for small- and mid-cap stocks, thanks to three factors.
You see, there are three forces that I expect to support stocks in June.
First, June is often referred to as “earnings pre-announcement season,” given that many companies reveal their expectations for the upcoming second-quarter earnings season. In light of these early results, analysts scramble to get their second-quarter estimates right. And these positive analyst revisions often support higher stock prices.
Second, the annual Russell realignment will occur later this month. Historically, the shift creates “forced” index buying pressure in the days following the preliminary add and delete lists, which will be released on June 7, June 14 and June 21. The first day of trading for the new Russell indices will be Monday, June 24. In some cases, stocks can move 10% to 20% due to the index realignment alone.
And third, many institutional investors will be shoring up their portfolios before the second quarter comes to a close at the end of June. Smart beta and equally weighted ETFs are also rebalanced every 90 days. This quarter-end window dressing creates forced buying pressure in many of our Buy List stocks, simply given their strong forecasted earnings and sales growth.
Taking Profits from a Big Winner
Even though we’re not even halfway through June, the month has already been great for my Breakthrough Stocks subscribers. Last Friday, we sold IntriCon Corporation (IIN) for a stunning 211% return. IIN develops miniature and micro-miniature body-worn devices. The company focuses on three major markets: hearing health, professional audio communications and medical.
I initially recommended the stock to the Buy List in September 2017 after the company posted record revenue and turned a profit in its second quarter.
Thanks to strong orders and revenue from its acquisition of Hearing Help Express, IntriCon continued to post stunning results in the final two quarters of 2017 and all four quarters of 2018. However, the first quarter of 2019 revealed that earnings momentum is slowing down.
In the first quarter, IntriCon reported 18.7% annual revenue growth and earnings of $0.08 per share. That was down from $0.10 per share in the first quarter of 2018, and missed analysts’ estimates for $0.10 per share by 20%. Due to the deceleration in earnings, the analyst community has revised second-quarter estimates 48% lower in the past three months. A lowered earnings forecast can precede future earnings misses.
The stock had also been downgraded to a C-rating in my Portfolio Grader, with a C for both its Quantitative and Fundamental Grade. With its fundamentals weakening and buying pressure drying up, it was time to sell and pocket our triple-digit gains.
However, IIN is far from a one-hit wonder. Currently, on the Breakthrough Stocks Buy List, I have two other stocks sitting in the triple digits. In fact, out of the 23 stocks on my Buy List, 15 of them are in the green. Of those 15, 11 of them are showing double- or triple-digit returns.
And given the strength I expect in June, which will be especially beneficial for my Breakthrough Stocks, I see even more gains ahead. I don’t want you to miss out, so I encourage you to sign up here now. I just recommended three brand-new stocks that are ripe for the picking. Click here to get started.