On Wednesday, the Federal Open Market Committee (FOMC) released its interest rate statement and economic forecasts, and traders responded positively to the report.

Plans for a taper to the current bond purchase program were roughly in line with expectations. In 2014, the Fed implemented a similar plan by tapering $10 billion in treasury and mortgage bonds per month until the program ended 10 months later.

This time, the Fed has a similar plan by slowing the purchase of treasuries by $10 billion and mortgage and/or corporate debt by $5 billion per month.

Could this stock be the #1 5G play?

We don’t expect this to shock the market too much, and as you can see in the following chart, the S&P 500 performed relatively well despite the taper in 2014 because economic and earnings growth was still positive. That is the case this time around, which we feel puts the odds in favor of a stable trend.

The bottom line is: Earnings growth rates are positive, and the market didn’t crash following the Fed’s announced taper. As long as this remains the case, the portfolio should be performing well, and we will be glad to have increased our risk exposure over the last two weeks.

Because it’s earnings season, we are usually looking for entries right after a stock reports. We plan to look for stocks from our watchlist that have dipped just a bit after their report, which gives us a greater potential for short-term profits…

Trading Opportunity No. 1: Online Shopping

Stock A has been on a wild ride since the company’s earnings announcement last week, but we anticipate the stock is going to stabilize as we head into the holiday shopping season and consumers scramble to find the most sought-after gifts.

In terms of numbers, the company beat revenue estimates by $40 million and non-GAAP earnings estimates by $0.02 per share — coming in at $2.5 billion and $0.90 per share, respectively.

Learn about one of the stocks leading the $56 trillion tech shift

However, management issued revenue guidance below expectations. Due to declining gross merchandise volume, they expect to generate revenue between $2.57 — $2.62 billion, instead of the consensus estimate of $2.65 billion.

This news sent the stock tumbling, but it appears to have found some stability at its current level. Interestingly, the stock rebounded the next day, almost filling the post-earnings gap.

This same price served as support (meaning the price at which the stock hovers around) in late-July, mid-August, and mid-September. We expect it to continue to hold through November, as holiday shopping starts to build in anticipation of Black Friday.

Learn how to get details on this trade here.

Trading Opportunity No. 2: Healthcare

Although today’s labor report could still have an outlier effect on the market, traders have made it past the “taper” with bullish sentiment still intact.

Considering the rate of growth in earnings, we aren’t surprised. The push and pull between inflation worries and higher interest rates will likely still be a theme over the next few months.

We have already seen a teaser labor report this week from a payroll company, Automatic Data Processing Inc. (NASDAQ:ADP), which showed the U.S. job market growing at a faster than expected rate.

Analysts had expected ADP to report 400,000 jobs added in October, but the firm showed 571,000 instead. Leisure and hospitality businesses (especially large companies in the sector) were the big job gainers. That’s good news for retail stocks because it implies higher spending levels (as new workers receive paychecks) as well as demand for services those companies provide from consumers.

We have been arguing for the last few months that the seasonality adjustments the Bureau of Labor Statistics (BLS) has applied to the official employment report have been overstated. When this happens, the BLS adjusts in future months to correct their prior estimates. We saw something like that in June and July last year.

We are still expecting the BLS to make a similar adjustment this year, which we feel puts the odds in favor of a sentiment-boosting report on Friday. So, we will be looking for some new retail positions to add to the portfolio but waiting until the labor report is released is prudent.

In the meantime, we recommend opening a position in Stock B now that earnings are past. This is a good time to make the trade while the stock dips. In addition, recent information implies that Stock B is trading at a much fairer value (or even undervalued) and investors will be attracted to the stock before the next report in January. That spells the perfect opportunity for us to set up a play now.

Learn how to get details on this trade here.

One Trade to Make Today

Energy Transfer LP (NYSE:ET), as you might have guessed by its name, engages in pipeline transportation and oil transmission. Basically, it’s a company that has been performing well in the energy rebound… and should continue to do so.

In Q2 2021, the company hit $15.1 billion in revenues, a jump of 106% over the same period a year earlier. With oil prices increasing quickly, there’s every reason to believe revenues will increase as company demand picks up.

The company is undertaking a debt-reduction effort, which should increase its attractiveness. In Q2 Energy Transfer paid down $1.5 billion in outstanding debt. In 2021, that took that number to $5.2 billion in aggregate.

Stock-Picking Legend Shares One of His Favorite Tech Plays

Companies like ET are interesting because they are relatively unknown outside of oil-focused investment circles. They have upside and rise quickly when a catalyst hits. Recent price projections suggest an average upside of 42%, but that is very likely rising as oil supply deficits worsen.

The shares that represent limited partnerships in the energy sector have somewhat fallen out of favor since 2019. However, energy product demand and a robust economic recovery have made them look much better. Volatility has been high, but a 6.14% dividend yield can go a long way in hedging that risk.

Right now, we like ET between $8.50 and $9.50.

We’ll be back with you Monday.

Sincerely,

John Jagerson and Wade Hansen
Editors, Trading Opportunities

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