I’m really enjoying this earnings season – but even I was shocked at how strong the market has been this week. There are a couple of things going on here that you should be aware of, in order to stay on the safe side of the street, so to speak.
First of all, there wasn’t a lot of volume on the rally. That means it’s more of an index rally, a mean reversion rally. Money just keeps flowing into all these index products; most of them are capitalization weighted. So, that just means whether it’s Apple (AAPL), Amazon (AMZN), Netflix (NFLX), Microsoft (MSFT), Facebook (FB) – the big get bigger.
The most popular index, of course, is the Nasdaq 100, represented by the Invesco QQQ ETF (QQQ). That stars Tesla (TSLA), and Tesla announces second-quarter earnings tomorrow. (Everyone’s watching to see if it was able to turn a profit this past quarter, which could qualify TSLA for the S&P 500.) And a lot of the valuations just don’t make any sense.
Meanwhile, the European Commission just announced this huge stimulus, 750 billion euros, for coronavirus relief. That makes the European markets gap up, then our U.S. stocks gap up. A lot of market moves this year have come before market hours. But this market is going to get very thin, very fast, and it’s going to be every stock for itself.
So, let’s hope companies beat their second-quarter earnings estimates. I do think there’s going to be a lot of surprises this quarter, because analysts are too pessimistic…
I just don’t think you’re going to find the best buys among the “usual suspects” I mentioned earlier. You don’t have to own just the big stocks: You can own things that actually earn money, and will continue to earn money, and have positive guidance.
The breadth out there is a little better than they might tell you it is. I’m proud that I own a lot of stocks that are just under the radar – and are doing incredibly well.
Remember, the Federal Reserve has been pumping up the market all along. Money is sloshing around all over the stock market as the 10-year Treasury yield keeps falling. One of the beneficiaries is the housing market. There’s a huge real estate boom in the United States outside the city centers. That’s a big reason why I’ve been advising investors to seek out stocks like PennyMac Financial Services (PFSI).
I’ve made no secret that PFSI is among my favorites; back in December, I even chose it for the InvestorPlace Best Stocks for 2020 contest. And since I featured the stock here in Market360 on March 6, PFSI is already up 17%! Monday’s rally bumped PFSI to a new 52-week high, in fact.
But it’s not just housing stocks. A few weeks after we talked about PFSI – and just after the market indices hit rock bottom – I featured a very different stock here: ResMed (RMD). This is the company that makes the CPAP (Continuous Positive Airway Pressure) machine for sleep apnea. Today they’re involved in all areas of Respiratory Medicine (hence the company name).
Once COVID-19 struck, RMD became very popular as a “coronavirus stock.” But I assured readers that it was much more than that. ResMed was already on its way to a fifth-straight earnings surprise.
Ahead of its upcoming earnings on August 5, RMD hit a new 52-week high on Monday, too. Now, just since I wrote to you about it on April 4, RMD is up 33%.
That’s just a couple of examples off the top of my head. I’ve been very busy with buy (and sell) alerts in my investing newsletters in preparation for earnings season, particularly in Accelerated Profits.
After the market bottomed on March 23 and started to claw its way back, my Portfolio Grader scans picked up so many Strong Buys that I’d added seven new Accelerated Profits trades by April 9 alone.
Many of these discoveries were from China, which was weeks ahead of us in terms of coronavirus outbreaks and recovery. My Chinese e-commerce plays are up 40% and 52%, respectively. A Chinese app developer is up 44% for us, too. And I found a Chinese semiconductor stock that’s already up 90% for us at Accelerated Profits! (That’s twice the gain in the QQQ.)
I release these buy alerts whenever I see opportunities to make a year’s worth of profits in months or even weeks – as you can clearly see with the examples I shared today.