(Please enjoy this updated version of my weekly Tuesday commentary from the Reitmeister Total Return newsletter).
Right now there is no serious reason for the market to go down. Stocks are the better value than bonds or cash thanks to ultra low interest rates. And the economy is improving. And we are in the middle of another earnings season that is nicely ahead of expectations.
So most things point to more gains in the weeks and months ahead. The key is finding the pockets of outperformance.
Gladly there are great clues that come out every earnings season to point the way to the best stocks. I will share with you how to decipher those clues so you can select more stocks ready to rise. We will cover that and more in this weekly commentary.
Even though we finally got above 3,800 the market action still feels very much like a consolidation period with heavy sector rotation. Sometimes that rotation is sector to sector. And sometimes market cap focused. And sometimes just a crazy whirlwind of action with no seeming rhyme or reason.
So it makes it hard to read how you are doing on a day to day basis. Thus, better to pull back to the big picture in order to better evaluate your progress vs. the market.
In the case of RTR, we have actually beaten the market each week since the new year began. And now up +10.12% in that stretch which is nicely ahead of the 2.49% gain for the S&P 500.
As stated in the intro, there are few reasons to be bearish these days. Not only are vaccines rolling out and Covid #s in the US rolling lower, but there are consistent signs of economic improvement. None more impressive than Friday’s PMI Composite Flash report.
Here we see the overall reading up from 55.7 last month to 58.0 now. And both manufacturing and services components took strong steps forward. These results are not a fluke as many related reports are showing similarly strong results.
For example today Redbook Weekly Retail Sales moved up from +2.2% year over year to +3.9% this week. That means the positive holiday results were not a fluke. And yes certainly the recent stimulus checks are working their way through the economy as intended.
On the manufacturing front we see solid readings from 3 of the regional reports.
7.0 Dallas Fed
14.0 Richmond Fed
26.5 Philly Fed
All of them were above expectations with Philly Fed being the most impressive result. No doubt these readings plus what was found in the PMI Flash report should come through again in the widely followed ISM Services report next week.
So again, there is not much reason for bearishness at this time. But with so many stocks pushing all time highs, one does have to work a bit harder to find value giving them a shot at outperformance.
But value alone is a mistake. Because if it doesn’t come hand in hand with impressive growth, then it is actually a value trap (a stock that will only go lower in time because its actually a poorly run operation leading to underwhelming earnings and a decidedly lower share price).
So that means you need to stay focused on what happens this earnings season. Look for stocks that don’t just beat expectations, but give analysts reasons to raise estimates for the future. This has been, and always will be, the most important part of stock selection.
I know it sounds obvious. But far too many investors just look at whether the company beat earnings and think that’s the end of the story.
NO…that is only the beginning of the story. Companies are SUPPOSED to beat expectations which is why 70-80% of companies leap over this low hurdle every quarter.
The next 72 hours is what really matters. That is when Wall Street analysts earn their robust salaries as they vet every bit of information on that report. Then pepper company executives with key questions that help them make sense of what happened this past quarter and what it means for the future.
If the beat was really just smoke and mirrors, the analysts will smell it out. Their reaction will be a lowering of earnings estimates for the future. This whisper to some, is a scream to others in meaning that the company is headed in the WRONG direction.
However, the company that impresses the analysts will see estimates on the rise. Same for fair value target prices. And likely a round of ratings upgrades making it clear to all who are properly focused on this information that the company has the right stuff to outperform in the weeks and months ahead.
Indeed these are the lessons I learned spending 19 years at Zacks Investment Research where earnings and earnings estimates were our bible for investing. And I still very much pray at this investment altar as it has helped me outperform consistently over the years.
No…not every time. That is fantasy.
Just consider that every stock has a coin flips chance of beating the market. 50/50. A healthy understanding of what I shared above on earnings estimates gets more of those coin flips coming up in your favor.
Then, in my case, adding an eye for value on top keeps the odds flowing my way. This combination certainly has paid the bills year to date given our +10.12% gain. And yes, I like the odds of those coin flips coming up our way more in the year ahead.
What To Do Next?
Right now my Reitmeister Total Return portfolio is correctly positioned for where the market appears to be headed in 2021. And is certainly taking advantage of the vital earnings clues noted in the article above.
If you would like to see the current portfolio of 13 stocks and ETFs, and be alerted to our next timely trades, then consider starting a 30 day trial by clicking the link below.
Wishing you a world of investment success!
…but everyone calls me Reity (pronounced “Righty”)
CEO, Stock News Network and Editor, Reitmeister Total Return
SPY shares fell $3.72 (-0.97%) in premarket trading Wednesday. Year-to-date, SPY has gained 2.65%, versus a % rise in the benchmark S&P 500 index during the same period.
About the Author: Steve Reitmeister
Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks. More...
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