While scanning the headlines, I found a great article in The Wall Street Journal from a few days ago I’d like to share with you. Kevin Marder, who heads Marder Investment Advisors and is a regular on MarketWatch, highlighted a few market trends you won’t want to miss.
In a nutshell, he has noticed an uptick in institutional participation. Of course, this is consistent with the January effect, where stock prices are buoyed by the return of institutions and traders. Often, institutions sell stocks at year-end for tax reasons. Then, once the New Year arrives, they turn around and buy stocks en masse.
This year, the institutions are flocking to retail stocks. This makes all the sense in the world, as I’ve discussed the U.S. economy is consumer-driven and, as discretionary income rises and consumers become more confident, retail stocks are poised to deliver outsized gains. However, I’d like to remind you consumers are getting picky. This means restaurants and retailers alike need to work even harder to differentiate themselves. In this environment, higher-end brands are doing well, as are those with a loyal customer base.
Many of the stocks Mr. Marder points out in the article have a history of solid earnings announcements and have exhibited strength even through the stomach-churning activity last summer. More than a few of these stocks have been on my radar lately, and I’m similarly bullish about their prospects for this earnings season. I took the liberty of plugging his stock mentions into my Portfolio Grader system, and I’ll let the grades speak for themselves:
- Approach Resources (NASDAQ:AREX) — B
- Chipotle Mexican Grill (NYSE:CMG) — A
- Dollar Tree (NASDAQ:DLTR) — A
- Fastenal (NASDAQ:FAST) — A
- Lululemon Athletica (NASDAQ:LULU) — A
- Monster Beverage (NASDAQ:MNST) — A
- Panera Bread (NASDAQ:PNRA) — A
- Starbucks (NASDAQ:SBUX) — A
- SXC Health Solutions (NASDAQ:SXCI) — B
- Tractor Supply (NASDAQ:TSCO) — A
- Ulta Salon Cosmetics & Fragrance (NASDAQ:ULTA) — A
However, Mr. Marder and I do diverge on one big issue — whether now is the right time to get involved with financial companies. Where he sees relative strength, I see red flags. Yes, some companies, like Bank of America (NYSE:BAC) and Morgan Stanley (NYSE:MS), posted surprisingly decent earnings recently. But, like I mentioned last week, the devil is in the details. As an ex-banking analyst, I can tell you the rot runs deep with many of these banking companies, and I’m not touching them until they’ve gotten their finances in order.
That issue aside, I thought the article was a good read and worth passing on. After months of a seemingly endless stream of doom-and-gloom reports, it’s nice to see some stock pickers are emerging from hibernation and seeing the forest for the trees.
This is a stock pickers’ market, and the key to success lies in selecting growth-oriented companies that have a strong earnings history, just as Mr. Marder has done. As always, a great place to start is with my Portfolio Grader tool.
Good luck, and happy hunting!