Oil Jumps...but Stocks Don't Follow

NOTE: The ‘Internet of Things’ is not just a buzzword. It is a burgeoning world of ‘smart’ devices that are connected to the Internet in some fashion. If you own or have seen a commercial for the Amazon Echo, then you know about the IoT. It is one of the quickest growing corners of the tech world, and Eric Dutram believes that it will be a big deal next year. In this week’s Zacks Confidential, Steve asked Eric to explain why he feels this is an ideal growth segment moving forward. Read his article and get a few recommendations by clicking: Internet of Things: The Top Industry for 2017.

The big news on Monday was oil prices, which surged on news that countries outside of OPEC would join the cartel in cutting output. Crude closed higher by more than 1.8% today…but stocks didn’t follow.

Instead, the S&P slumped by 0.11% to 2257 and the NASDAQ declined 0.59% to 5412.5. Both of these indices broke winning streaks to start the week. The Dow hit another new high in the session, but was only up 0.20% to 19,796.4. In recent years, you could blame the Fed meeting later this week for stunting the rally, but this time the odds for a rate hike are above 95%. The market is expecting a quarter-point lift, and would probably react negatively if we didn’t get one.

Most likely, the market is just taking a break coming off its best week in this impressive post-election rally. The editors see this slowdown as temporary and, therefore, a great opportunity. For example, Home Run Investor waited for the initial Trump frenzy to dissipate, and then today added a stock that should advance in the next wave. Also, Zacks Counterstrike did what it does best; invested in a company that was victimized by HFTs despite a solid report. It also shorted a financial stock that looks to have risen too far too fast in the rally. Finally, the Surprise Trader and the Black Box Trader each sold positions for double digit profits. Give it all a look below:


Double-Digit Returns

→ It’s been nearly two months since Surprise Trader added Halliburton (HAL), which means it’s time for the portfolio to get out of the remaining shares (Eric has already taken two profits out of the original position). The editor is getting a chance to sell into strength today, since shares of HAL are on the rise thanks to another oil price surge. The portfolio exited the rest of HAL on Monday and enjoyed a 16.4% return.

→ All four of the sells in this week’s Black Box Trader were profitable, but the biggest winner was The Chemours Co. (CC) with a 15.7% return. The other sold positions include MasTec (MTZ, +8%), Big Lots (BIG, +5.7%) and Humana (HUM, +3.2%). Learn about the new picks replacing these names below:


Today's Portfolio Highlights:

• There’s a classic Zacks Counterstrike play all set up for Ulta Salon (ULTA). The $15.5 billion beauty products retailer has beaten the Zacks Consensus Estimate for 12 quarters in a row, including its most recent report from a couple weeks ago. Rising earnings estimates have turned ULTA into a Zacks Rank #1 (Strong Buy). However, high-frequency traders pulled the stock’s price down by as much as 30 points since the announcement. It’s a no-brainer for Jeremy, who added ULTA to the portfolio with a 13% allocation. He believes this approximately $250 momentum stock might be able to get up to $300 by mid-to-late January.

But that’s not all. The editor has been talking about shorting stocks for a while now, especially with financials. On Monday he made it happen by selling Great Western Bancorp (GWB) short with a 9% allocation. This regional bank has jumped to $42 from $31 since the election, and Jeremy is having a tough time understanding the reason for such a surge. Instead, he believes that many companies in this space have risen too far, too fast and are destined for a correction. This is especially true for GWB, which is a Zacks Rank #4 (Sell) that recently missed quarterly EPS expectations. He warns that this is a risky, speculative play. Learn more about both of these moves in the complete commentary.

• When the Trump trade picks up again after this lull, a domestic industrial company like Berry Plastics (BERY) should be a big beneficiary. It is the largest purchaser of resin in North America, and a leading producer of plastic packaging and nonwovens. BERY reported a solid quarter last time with impressive year-over-year growth in EPS and revenue. After waiting for the initial Trump frenzy to subside a bit, Dave decided that BERY would be a good addition to the Home Run Investor. Read more in the complete commentary.

• The Black Box Trader swapped out four names this week. As noted above, all four sells were positive. The new additions are AK Steel (AKS), Spirit Aerosystems (SPR), Seagate Tech (STX) and UnitedHealth Group (UNH). Read the Black Box Trader’s Guide to learn more about this computer-driven service designed to take the emotion out of investing.

• "After a blistering post-election rally over the last few weeks, which saw all of the major indexes soar to new all-time highs, the market got off to a slow start this week.

"But, things are bound to get more interesting later in the week when the Fed decides if they'll raise rates at their FOMC Meeting Announcement on Wednesday. Pretty much everyone is expecting this to finally happen and for it to be a quarter point hike.

"I believe it should be looked at as a vote of confidence for the market, and thus inspire a continuation of the rally. Of course, there are some who say the market may have rallied in anticipation of this and the market is due for a pullback. If that's the case, I would only expect a minor one at that, and for it to be short-lived as well. There are just too many bullish things happening in the economy right now.

"As you know, I'm looking for a near-term price target of 2,400 on the S&P. But, as I mentioned before, I think we're looking at 2,650 (and maybe higher) by this time next year," said Kevin in Options Trader.

All the Best,
Jim Giaquinto
 

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