It’s become clear, folks, that we’re not going to have a “V-shaped” recovery, though that’s always the hope after a sharp market decline. We’re going to have a “U-shaped” recovery. It’s coming along this week, with a 7% rally in major indexes, including more than 1,600 more points tacked on to the Dow.
The bears have also been forced, through “margin calls” at the brokers, into a lot of “short-covering,” or automatic buying. So, in the upcoming days I expect that short-covering to cease. A lot of my high-quality stocks have broken out, which is very encouraging. But we want to see that continue, and we want to see the low-quality stuff basically lose its momentum a bit. All I care to see is the crème de la crème rise.
The crème de la crème is a very narrow group right now. I’ve mentioned that I keep finding buy signals for Asian stocks, mostly to do with online shipping. I’ve published a few more opportunities in my Growth Investor research and podcasts.
It’s hard for you to go out and buy an iShares exchange-traded fund (ETF) that mimics these niche subsectors where I’m finding opportunities now. So, I envision more of a stock-picking market moving forward, and less of just a pure sector market.
I’m a stock-picker – so I’m comfortable with that. The bottom line is, you should be prepared for an increasingly narrow market, with drastic differences between winners and losers. We’ll know who those winners and losers are as the first-quarter earnings announcement season gets underway.
Circling back to the Asian markets for a moment… over in South Korea – which has done a remarkable job battling the coronavirus – Samsung (SSNLF) expects a slight earnings beat. In the first quarter, Samsung is guiding for 5% revenue growth and 2.7% earnings growth, year-over-year. That doesn’t blow the doors off, of course. But it’s not bad for a quarter that took place in the thick of a worldwide pandemic.
As for the components to these smartphones, Micron Technology (MU) announced that its guidance is holding up pretty well, too. For the fiscal quarter ending in May, Micron’s projections were in the ballpark of what Wall Street analyst expected, which was revenues of $4.87 billion and earnings of $0.52 per share. (As for the quarter ending in February, those results were better-than-expected, too.)
As for consumer staples – a safe haven in the coronavirus economy – those have actually been a mixed bag. For example, the Kroger (KR) grocery chain reiterated its earnings guidance for 2020, but basically warned us against getting overenthusiastic about 2020 sales. While it did raise first-quarter guidance, it also “expects volatility in sales throughout the year as the impact of COVID-19 on the consumer evolves.”
Similarly, Constellation Brands (STZ) was hesitant to speculate about future sales. The beer and wine maker joined a lot of other companies in declining to give future guidance. Unlike many U.S. states, for instance, Mexico has deemed the beer industry to be non-essential during the coronavirus pandemic. Besides COVID-19, Constellation may have a unique setback in its supply chain: In late March, a local ballot referendum in Mexicali, Mexico halted Constellation’s plans for a new, billion-dollar brewery there.
Dollar Tree (DLTR) has also withdrawn any earnings guidance for the first quarter or the year ahead. The discount chain has reacted very differently in this bear market vs. the last one, and this doesn’t help matters.
Meanwhile, the homebuilder M.D.C. Holdings (MDC) did announce a drop off in new-home orders in March, due to the coronavirus outbreaks. In the preliminary figures for March, the company had 611 new-home orders, which is down from 834 orders in March 2019. However, new-home deliveries last month totaled 712, which was up slightly from 648.
Overall, while MDC did have a backlog of 4,653 to end the quarter, it also received 2,399 orders for new homes, up from 1,956 orders in the first quarter of 2019. New-home deliveries totaled 1,547, or a 13.9% year-over-year increase.
MDC felt at least confident enough to announce a dividend payout of $0.33 for May 20. That’s a 10% increase – while other, household names are cutting dividends – and represents a nice 5.5% forward yield. MDC has a place of honor in my Elite Dividend Payers portfolio and on my list of Top 5 Stocks for April in Growth Investor.
To underscore the impact of these “breaking news” items from companies, take a look at their current grades in my Portfolio Grader:
The companies that offered up good news were the ones with strong Quantitative Grades – my proprietary measure of buying pressure on Wall Street…which happens to be the single most important factor in a stock’s long-term success. The companies that didn’t…fell short.
So, I’m going to count on earnings to propel my stocks higher – and I’m going to trim some stocks that have gotten too volatile, or sell them outright. I’m going to be pretty busy here in the next few weeks.
If growth stocks emerge as the silver lining, we’re going to recover a lot faster. Give me about 10 days or so to confirm that. For those of you who have cash on the sidelines, please be patient with it. If stocks do act right and respond positively to their earnings, that’ll be the signal to jump in feet-first.
In the meantime, don’t be surprised if we continue to oscillate more, which would be perfectly normal in the current market environment. Regardless, I’m encouraged by the action this week, and I hope you are, too. We’ll get through this together.
Note: I did make an all-new recommendation for Growth Investor this month. Once I see the signals I’m looking for – earnings reports (and how stocks respond), analyst news, and a decline in coronavirus cases – there could be a lot more where that came from.
In the big picture, my broader themes remain intact. That includes the 5G wireless revolution, which is just starting to come into its full potential. Go here for my free briefing and secure your copy of my 5G investing guides.