It’s nice to see strong upside on good news, like the May retail sales report. But that doesn’t mean the market is done oscillating. When it does, I don’t want you to worry. I want you to be happy – because this is a great time to be a stock picker.
Even in Monday’s volatility, some of the best growth themes remained unstoppable. That certainly includes the mortgage refinance boom, in which PennyMac Financial Services (PFSI) – my pick for the InvestorPlace Best Stocks for 2020 Contest – just hit a new 52-week high. This week alone, it’s gained another 11%. My other A-rated stocks have done especially well lately, too.
China, specifically, has offered some real gems. Investors brave enough to “buy the dip” in these stocks, the crème de la crème, have been well rewarded. On April 1, for instance, I added ZTO Express (ZTO) to my Platinum Growth Model Portfolio. Already, investors in this Shanghai-based trucking & logistics company have enjoyed a 40% rally to new highs!
On the other hand, COVID-19 continues to be a serious problem. Places such as Houston and Phoenix are starting to have some pretty serious outbreaks. But what remains to be seen is: Are we seeing more cases simply from more testing? Will we actually see more people hospitalized? We wouldn’t want the hospitals to fill up, of course, as Phoenix is starting to see.
It does look like COVID-19 death rates are falling because more people who test positive are asymptomatic. I don’t say that to make light of the situation at all; I just don’t think it’s going to kill the economy, as some feared. (Even Fed Chair Jerome Powell is sounding less depressed now than he did last week.)
These fears have just caused a flight to quality…and I only recommend the best-quality stocks, anyway!
In the broad market, a lot of big moves have come from overseas. For instance, there are a lot of layoffs in Europe already. Britain has been having a really tough time, with a 20% economic contraction in April.
Americans are more optimistic, myself included. The stock market has fully anticipated a V-shaped economic recovery for the United States; the Federal Reserve predicts a U-shaped recovery. It’s just going to be fascinating to see how this shakes out.
Not only are retail sales improving, but our employment statistics are getting better, too. Weekly claims keep falling. There is some distortion because a lot of independent contractors (versus employees), like Uber (UBER) and Lyft (LYFT) drivers, are getting unemployment. So, in theory, as they get back to work, the numbers get better.
In the meantime, all the uncertainty creates a flight to quality. A lot of the recent strength lately has to do with the Russell realignments (we’ll take a closer look at that later this week). But I’ve also noticed that a lot of my best performers have been defensive stocks:
Two of my medical device makers climbed 10% on Monday alone. So did Zoom Video Communications (ZM), which is up 55% in one of my growth portfolios in just a month! Given the massive shift to teleworking, I’d have to put ZM in the “defensive” category nowadays.
In the big picture, this cloud-computing space is full of great buys for growth investors now. Some of my best gainers for Platinum Growth fall into that category. What’s more, several of them are still “Buys” in my Portfolio Grader – and still under my buy-below price for the Platinum Growth Model Portfolio.
Now, even with a promising group like cloud computing, it still pays to be highly selective. I’m willing to jettison stocks, even those that have done well, when they don’t fit with the proven strategy I’ve relied on throughout my career. In fact, I did so today with one of my other cloud-computing stocks. We took our 126% profit off the table – and we’ll rotate those funds into the best buys the market has to offer today.
Smart diversification is what it’s all about. So, if you’d like to see what makes the grade now, click here to try Platinum Growth Club and see all my latest buy and sell recommendations.