We had a bit of a rest in the stock markets last week, but I expect the upward momentum to continue very soon. And though we’ve recently lost a little speed, we have seen growth in all 11 Morningstar sectors so far this year.
Year-to-date, consumer cyclicals is the winner, with stocks averaging an 18.3% gain, followed by technology (16.8%), financial services (15.6%) and industrials (12.1%). Even the worst return — 5.1% — posted by utilities, is pretty darn good!
As I said at the beginning of the year, I fully expect that momentum to continue into the foreseeable future due to significant improvements in the U.S. economy. Rising corporate profits, reduced unemployment, a more active housing environment, and still-low interest rates are all contributing to a more positive mindset in consumers and investors.
With that in mind, I’ve decided to begin publishing My Two Favorite Stock Picks weekly.
I’ll give you some basic information as to why I think they have room to grow, including how much potential I believe they have. Then you can do your own research to see if they fit in with your investing goals.
My screening criteria are basically fundamentals-oriented, asking the question: Is this a strong, well-run company? A few of my primary screens are good cash flow, low debt, low P-E, and increase in institutional interest. Those parameters are augmented by a few technical indicators, such as moving averages and momentum factors, which tell us if this is a good time to buy (or sell).
When I ran my screens this week, I came up with a whopping 37 companies! Here are two with the most potential:
Spectrum Pharmaceuticals (NASDAQ:SPPI)
Spectrum is a biotech company that operates primarily in hematology and oncology.
Market cap: $791.55 million
Why I Like It: Discounted value, focuses on two fields that are growing phenomenally, with the ability to be a takeover candidate for a larger pharma, as well as a buyer of its smaller competitors.
FSI International (NASDAQ:FSII)
FSII operates in the microelectronics industry, offering surface-conditioning equipment that uses wet, cryogenic and other chemistry techniques to clean, strip, or etch the surfaces of silicon wafers. It also sells refurbished micro-lithography products to deposit and develop light-sensitive films.
Market cap: $200.96 million
Why I Like It: The semiconductor sector is on an upswing, along with FSII, which just reported a very good quarter. I also like the company’s cutting-edge technology — an indicator of a good business that might also make a great takeover candidate. Also, I think the company is undervalued.
These stocks are both small caps, so please understand that investing in them may entail more risk than buying shares in their larger competitors. Consequently, if you decide to purchase them, please make sure that they constitute only a small portion of your portfolio.