Did you catch the big discrepancy in the latest consumer confidence data for April? I’m a numbers guy, so when I see data that’s not getting much media attention, I like to make sure my readers hear about it.
When the Conference Board released the new figures for its Consumer Confidence Index on April 28, here’s how the big news outlets reported it:
Consumer confidence plunges in April as millions lose jobs – CNBC
US consumer confidence tumbles in April – Associated Press
Consumer confidence plunges to six-year low – CBS News
The Wall Street Journal gave you the best representation with this headline: Coronavirus Prompts Record Souring of Consumers’ Outlook—and Hope Pain Will Be Short-Lived.
You see, this “Consumer Confidence Index” is really multiple indexes. For instance, the Present Situation component “declined considerably, from 166.7 to 76.4…the largest [drop] on record,” according to the original data release. But the Expectations for the future actually rose to 93.8 in April, up from 86.8 in March, as I note in my Breakthrough Stocks Monthly Issue. So, clearly consumers are expecting economic conditions to get much better in the upcoming months!
I certainly hope that Americans are so optimistic that they can continue to look forward…
But there is no doubt that many investors will be discouraged by the wave after wave of negative economic news that will be unfolding in the upcoming weeks. The Congressional Budget Office (CBO) is predicting a 40% drop in second-quarter GDP and that the unemployment rate will soar to 14%.
Those would be horrific outcomes, no doubt about it. As such, I expect the stock market to grow bumpier as Wall Street digest the weak economic news.
However, that doesn’t mean you should run to the sidelines until the dust settles. Instead, you have to focus on the recession-proof stocks – the stocks that are fundamentally superior; in other words, the ones that will continue to post strong sales and earnings in the coming quarters – despite this huge economic disruption.
For example, right now my Breakthrough Stocks are estimated to post 39.1% annual sales growth, on average, plus 86% annual earnings growth for their next quarterly announcements!
You may recall that Breakthrough Stocks is my Buy List of small-cap stocks.
So, speaking of data…my friends at Bespoke had some much more encouraging news on that front:
- In April, the Russell 2000 rose by over 1% for six consecutive days. “The only other time that happened was in January 2000,” Bespoke notes.
- Even four or five consecutive 1%+ gains had only happened 11 times since 1980.
- Then after these events, the Russell 2000 continued to rise. On average, the Russell 2000 was up 3.7% a month later, 4.4% three months later, 14.2% six months later and 24% a year later. (That’s far more than the S&P 500 large-caps, by the way.)
Naturally, this historical pattern for small-cap stocks is very encouraging for the upcoming months.
One Big Caveat for Small-Cap Investors
The flip side of this coin is that, as any stock market moves higher, it typically becomes much more selective. This is why I don’t just recommend that my readers buy a Russell 2000 index fund, put my feet up, and call it a day.
Instead, I work continually to fine-tune our Breakthrough Stocks Buy List and focus solely on the crème a la crème!
Sometimes, that means that I have to jettison some of my favorite stocks. Case in point: Just yesterday, I issued a sell alert for Universal Display Corporation (OLED).
If you’ve been following me here at Market360, you’ll recall that OLED’s technology means it’s directly in line to profit from the shift to better energy efficiency.
In a nutshell, OLED displays are superior in that they don’t require backlighting (which would suck more power from the battery), while still being brighter than regular LEDs. Their layers are also plastic versus crystal, which means they can be lighter and more flexible, as well as thinner.
And Universal Display Corporation’s technologies are used in practically every commercial OLED product, including tablets, smartphones, televisions and smart watches. Big-name companies like Samsung and LG use Universal Display Corporation’s OLED in the Galaxy smartphone series and televisions, respectively.
As recently as mid-February, the company’s revenues were up 63.8% year-over-year…while earnings gained 135.2% year-over-year.
Unfortunately, a lot of OLED’s manufacturing happens in Hubei province, China’s epicenter of coronavirus outbreaks. And in the three months preceding OLED’s first-quarter report, analysts lowered their earnings forecast by 18.3%.
This was a red flag – so, as much as I admire OLED’s technology, I told Breakthrough Stocks subscribers to sell their position ahead of today’s earnings report.
I mention this to show how serious I am about what I’ve been saying here. If a stock struggles with earnings, you need to sell. That goes for the first quarter and the second quarter. The risk is simply too high in a market like this…
Especially when there are plenty of companies with better growth prospects now where you could invest instead.
If that sounds preferable – and it should! – then go here to give us a try.
Tomorrow, in my Breakthrough Stocks Monthly Issue, you’ll get details on my Top 5 Stocks for May. All five are “Strong Buys” in my Portfolio Grader now, in companies that just posted double- or triple-digit sales/earnings growth…or are expected to do so soon.
Note: Platinum Growth Club is where you get my Model Portfolio for growth investors in small- and large-cap stocks. It’s all about smart diversification. I always want the best buys, and when a stock no longer fits with the proven strategy I’ve relied on throughout my career, we cut it from the team.
In addition, you’ll have access to all the other services – Growth Investor, Breakthrough Stocks and Accelerated Profits, as well as the Power Portfolio 2020 my InvestorPlace colleague Matt McCall and I created. Sign on now to take part in our Open House and get all the buys and sells for 30 days, risk-free. You’ll also get VIP chats…podcasts during dramatic market conditions…everything I have to offer.