Vaccine news is causing a sector rotation … why Louis Navellier isn’t jumping into value stocks … a market approach that frees you of needing a crystal ball
Do investors need to re-think the work-from-home trade?
Last week, Pfizer reported its COVID-19 vaccine may be 90% effective.
Yesterday, Moderna topped that, reporting that its preliminary phase three trial data show its coronavirus vaccine is more than 94% effective.
The news led the Dow Jones Industrial Average to hit a new all-time high yesterday, putting it within striking distance of the 30,000 mark.
In offering investors the first real hope of a return to “normal,” the vaccine breakthroughs have had an interesting impact on stocks.
Last week and yesterday, we saw a surge from hard-hit “non-lockdown economy” stocks that had suffered during the height of the coronavirus restrictions.
From my colleague, Luis Hernandez, in Saturday’s Digest:
Stocks that had been hit hard during the pandemic suddenly shot higher.
United Airlines Holdings (UAL) climbed up to 27% at the peak of Monday’s rally. Royal Caribbean Group (RCL), Carnival Corporation (CCL) and Norwegian Cruise Line Holdings (NCLH) all increased more than 30%.
Meanwhile, stay-at-home stocks took a hit.
That vaccine announcement on Monday … drove investors … out of those (stocks) that fared better from the work-from-home trend.
Large-capitalization technology shares took it on the chin, with the Nasdaq Composite Index down 1.2% so far (last) week …
And stock investment themes like value, representing stocks that are undervalued by some metric, trounced growth stocks, or those expected to show above-average profit and revenue gains, by more than 5 percentage points, by at least one measure.
So, back to the question that opened this Digest …
Does this vaccine news, and the hope of the return to normalcy, mean it’s time to bail on the work-from-home trade?
Today, let’s see how legendary investor, Louis Navellier is answering this question.
***How to play today’s “washing machine” market
For newer Digest readers, Louis is an investing legend.
MarketWatch called him “the advisor who recommended Google before anyone else.” And Forbes gave him the title “King of Quants.”
“Quant” simply means he uses numbers and algorithmic-rules to guide his investment decisions.
The approach has been highly effective, as Louis has amassed one of the most respected track records in the investment community.
Now, circling back to our question above, here’s Louis from his update last Friday, establishing context for what’s been happening in the market:
On Monday and Tuesday, we saw the start of a “mean reversion” rally I told you about in Tuesday’s Market360, where sectors that had been performing poorly in the pandemic — like oil, airlines, hotels, and cruise ships — began to rise on high volume.
Meanwhile, stocks that have been outperforming, like COVID-19 testing companies, collaboration platforms and tech stocks all sold off earlier in the week.
Understandably, investors were excited for a return to more normal economic conditions based on the prospects of a highly effective vaccine candidate from Pfizer (PFE) and BioNTech (BNTX) …
But Louis was quick to note that “normal” isn’t at our doorstep quite yet …
The reality is that COVID-19 isn’t going away any time soon, and I still anticipate the washing machine market will persist in the near-term, as the impact of the pandemic remains uncertain.
For any readers less familiar, a “washing machine market” means that investor capital is flowing from one sector to another, but investors aren’t actually getting out of the market. In recent days, this has meant money flowing from tech stocks into value stocks.
Although the vaccine news is positive, Louis points out that widespread distribution of such a vaccine remains months away at the earliest.
In the meantime, various states are considering a new round of lockdowns while other states are already enacting them.
The wave of Covid-19 infections sweeping across the United States was followed Monday by a spate of new lockdowns and calls to reimpose restrictions after a week when more than a million new cases were reported …
In Chicago, a sweeping stay-at-home advisory to slow the spread of the virus was scheduled to go into effect Monday.
In Philadelphia, new restrictions were expected to be announced later Monday as the numbers of new cases soared and the holidays loomed.
And New York Mayor Bill de Blasio said that public schools will stay open for now but that if the positive testing rate goes over 3 percent — and it has been edging ever closer to that — he would be forced to close the country’s largest public school system and resume remote learning.
In light of this, giving up on the work-from-home trade would seem foolish. It appears we have, minimally, 6 months of pandemic to handle before a majority of the population will be vaccinated.
***But are we splitting hairs over a few months? Is it time to bail on the work-from-home trade in preparation for its eventual end, whenever that comes?
For that answer, let’s peek into Louis’ Platinum Growth Club flash alert from yesterday:
Remember, the “value shift” that’s been triggered by the Pfizer and now the Moderna vaccine news will not last forever.
The surge in energy stocks, as well as airlines, cruise ships and hotels, is clearly short covering.
So, I still expect our fundamentally superior stocks to rebound and continue to lead the market higher through year-end.
Also, while the positive COVID-19 vaccine data is the main reason why the stock market is rallying this morning, we’re also in the seasonally strong time of year.
November is one of the strongest months of the year for the stock market. The reality is that we’re in the holiday season, and folks are naturally happy during the holidays. When Main Street is happy, Wall Street is happy.
So, I look for the recent stock market strength to continue through at least year-end.
Given Louis’ take, the question then becomes “well, when might it be time to bail on the work-from-home trade?”
Well, Louis just gave us a clue when he referenced his stocks …
“Fundamentally superior stocks.”
It’s time to get out of a trade when weakness in the numbers suggests a deterioration of fundamental strength.
***For a quant investor, “when should I buy and sell stocks?” reduces to fundamental strength as proved out by the numbers
As we noted earlier, Louis is a quant.
Given this, he doesn’t buy and sell based on hunches or guesses about the future.
His approach is rooted in cold, impartial numbers. They guide what he buys, what he sells, and when he sells. Given this, until the numbers change, the trade continues — despite what the talking heads may say.
The approach works. That’s why if you look at his Growth Investor buy list, you’ll see 14 stocks with gains greater than 100%.
Louis’ subscribers get the benefit of this numbers-based approach. But today, we’ll help out the non-Louis subscribers …
Check out Louis’ Portfolio Grader tool.
It’s a free, fantastic way to get an instant snapshot of the fundamental quality of your specific stocks.
Its analysis covers the same key fundamental factors Louis relies on in his paid services:
- sales growth
- operating margin growth
- earnings growth
- earnings momentum
- earnings surprises
- analyst earnings revisions
- cash flow
- return on equity
The benefit of this approach reduces to one, primary thing …
You get an impartial determination of whether your stock is rooted in quantifiable strength … or not.
So, the stock of cruise line, Royal Caribbean, has been soaring over the last few days, and you’re wondering whether company fundamentals support it?
Here’s your answer:
Meanwhile, Zoom’s price has been pulling back, and you’re wondering whether strong fundamentals suggest this could be a buying opportunity?
Plenty of strength here:
As we wrap up, the extent to which the new vaccines will affect the work-from-home trade isn’t yet clear. Much less the timing.
But when you’re investing according to fundamental strength, you don’t need to guess. You simply follow the numbers.
When you do, you can be as confident as Louis is today. We’ll let his bullishness from his recent update take us out:
The bottom line: It’s lock and load time, folks.
Have a good evening,