The lull between quarterly corporate confessions is almost over. A week from now, this space will start filling up with Earnings Previews, Earnings Reviews and all the associated updates that investors need to get through another headline-rich season. As we’ve pointed out repeatedly, expectations for this cycle are extremely low, raising the odds that most of our key companies will hit their numbers or deliver an upside surprise.
Applying that across the market suggests that it doesn’t take a whole lot of upside surprise to give the S&P 500 a thin pulse of year-over-year growth. That’s what we want to finally push the index past last year’s peak. Otherwise, only a decisive breakthrough on trade negotiations with China will do the trick. We aren’t concerned because we never recommend that any BMR subscriber simply buy the market as a whole. In our view, that’s the lazy lowest-common-denominator approach, giving investors exposure to the “random walk” of the economy as a whole and holding onto obvious weakness and underweighting equally obvious strength.
Buying the market forced investors to hold the ailing Energy sector for years following the 2014 Oil crash, for example. It’s just not what we do. But it is nice to see that both the S&P 500 and our stocks gained ground in near-unison last week. We’ve outperformed for so long that it’s only natural that the market gets a little time to catch up.
Of course it wasn’t an easy week. The mood started looking a little ugly on Thursday when investors pulled money out of “risk” assets (like the Aggressive stocks we love so much) ahead of Friday morning’s closely watched Labor Department report. They were afraid the numbers would reveal the “recession” that so many people have talked about in the wake of the federal government shutdown and slightly sluggish economic growth.
As it turns out, those who retreated to the sidelines were wrong. The numbers were great. If there’s a recession brewing, nobody told the people who are committing to hire people for the long term. Personnel budgets aren’t frozen. Mass layoffs are not happening. Stocks rallied on the news Friday and the market appears positive for the coming week.
There’s always a bull market here at The Bull Market Report! This week's Big Picture compares our wild quarter to the market on a sector-by-sector basis, revealing an almost embarrassing number of points where we were ahead of the curve.
And there's always more, but you'll need to sign up for that. Look out: we are contemplating raising the price from $249 to $399 or even $499 a year, as we offer a tremendous value and have made a lot of money for our subscribers (40%-plus) in the past two years. Click here to subscribe at the still low price of just $249 a year:
Key Market Measures (Friday’s Close)
BMR Companies and Commentary
The Big Picture: Sector Sweet Spots
With the best quarter in nearly a decade driving the taste of the 4Q18 correction out of the market’s mouth, this is a great time to take a step back and refresh our strategic view of which themes are working and which are still struggling to find their footing.
Start at the top with Technology, where the sector as a whole is up a thrilling 22% in the last three months. You know we’re deeply committed to these stocks, from the gigantic FAAAM (minus Facebook for the time being, of course) down to the more speculative names that dominate the Aggressive list. Our High Technology portfolio in between is up 33% YTD, largely because we’ve avoided most of the laggards that will always circulate in any sector.
Admittedly, a lot of the biggest stocks we associate with Silicon Valley have now been reassigned to other sectors like Communications (where Alphabet, Twitter and Facebook now reside) and Consumer Discretionary (which Amazon rules). Those themes are up 18% and 15% YTD, respectively, largely driven by their gigantic Tech constituents. We are, however, pleased to see our sole brick-and-mortar Retail recommendation breaking 52-week records, practically keeping up with Amazon itself.
Otherwise, a lot of sectors are doing fairly well but remain largely off limits to BMR subscribers while we gauge the impact of tough talk around global trade. The Industrials, Basic Materials and Consumer Staples groups are in this category, and we’re only remotely regretting our posture on the sidelines where a few of the key Industrials are concerned – the other two sectors aren’t keeping up with the S&P 500, let alone our stocks.
Likewise, the Utilities and Financials are far from impressive so far this year. We never expect the Utilities to soar, and when the Banks come back, we have our standing broad exposure without forcing any bets for or against any stock in particular. Meanwhile we're beating the sector as a whole, up 12% YTD.
Real Estate is hot, up 17% as the rate outlook cools. Our REIT portfolio is tracking that heat nicely. Healthcare is a little lukewarm, but with a 13% average return from our high-conviction recommendations, we’re in the hot spots. Finally, Energy has been unexpectedly huge, as 19% YTD performance on our sector fund here demonstrates.
And while we don’t like to brag, we were curious to see how well our stocks fared against the S&P 500 and its 15% YTD gain. In the aggregate, the BMR universe has gained 20% over the past three months. We’ll keep working to fill in the gaps and pivot to the new sweet spots when they emerge.
Twitter (TWTR: $35, up 6%)
We’re off to an excellent start this year, up 21% YTD. Twitter is a $25 billion company and owns roughly 5% of the Social Media marketplace, and enjoys its fame as presidential communications medium of choice. There’s plenty of opportunity for growth, both for the company and the stock.
Last year was a great year for Twitter. Profit doubled, hitting $660 million on overall revenue of $3 billion. This year we’re steeled for a little margin erosion so any earnings growth at all will be a welcome surprise for a stock that’s already doing extremely well. All it takes is for revenue to ramp up 15% instead of the 14% our projections tell us to expect, and that’s not unreasonable. Most of Twitter’s revenue comes from advertising. That business line is expected to pick up speed over the coming quarters as the company boosts its international presence.
That’s especially good news for Twitter. Where granting corporate customers access to user data remains a cornerstone of rival Facebook’s business model, this company is all about the ads. As a result, regulatory pressure is not an issue here like it is for Mark Zuckerberg. Twitter isn’t facing the same bipartisan political chill, so it doesn’t need to invest as much in new systems to keep Washington and Brussels happy.
BMR Take: Again, Twitter is only 5% of the Social Media world right now. All the company needs is to exploit some chinks in Facebook’s armor and its advertising revenue can double in short order. Meanwhile the underlying business is finally stable. We like Twitter for continued steady gains this year, with the potential of a huge boost if Facebook takes a regulatory wallop. Our Target is $36, hopefully soon to be raised, and we are hereby raising our Sell Price to $29.
NOTE: In our weekly paid subscription Newsletter, we do between 5 and 7 of these SnapShots, like Twitter, above. Plus, we have the Weekly High Yield Investor, whereby we discuss the 17 stocks in our High Yield and REIT Portfolios.
And to top it all off, we send News Flashes each day during the week. Got a question about any stock on the market? We'll answer. So if your favorite stock reports earnings or there is significant news, you will hear about it here first. If you want the whole picture, join the thousands of Bull Market Report readers who are making money in the stock market and subscribe here:
It’s only $249 a year, and later this year we will be raising it to $499 or even $999 a year, it is just THAT valuable. But we will lock you in for life at this lower price.
Todd Shaver, Founder and CEO
The Bull Market Report
Just $249 a year, soon to go up to $499. But you are guaranteed the SAME PRICE forever.