Zacks May Strategy -- IT Strong! - Analyst Blog

The following is an excerpt from John Blank's full Market Strategy article. To download the entire PDF, please click here.

Real GDP Growth Gets More Solid in 2014

According the SFO Fed, real GDP grew a solid +2.5% over the four quarters of 2013, despite being held back by less accommodative fiscal policy.

More recently, unusually severe winter weather in many parts of the country account for some but not all of the weakness in spending and employment.

Starting this spring, the SFO Fed anticipates a return to above-trend growth of around +3.0 to +3.5%. Improving financial conditions, increasing credit availability, accommodative monetary policy, and healthier labor and housing markets all support a faster pace of growth.

Overweight IT...

Apple AAPL is helping now, post-buyback.  IT earnings growth for Q1 has been poor at +0.8%, but +7.6% is seen for Q2. +5.4% is seen for FY2014 for earnings on +4.5% revenue growth. Zacks Rank #1 IT companies are worth a look.  

Zacks Sector/Industry/Company Telescope

May offers a fresh mix of leading sectors.  The clear leader is the IT sector, followed by Industrials, Financials, and Energy.  These sectors speak to an improved outlook inside and outside the USA for global GDP growth.

(1) IT is Very Attractive.  The leader, in a big upgrade, is the Semiconductor industry, which is now Very Attractive, along with the Electronics industries. Misc-Tech fell back to Very Unattractive.

Company to Look at: Sanmina SANM

(2) Industrials?  Attractive.  Stay with the Aerospace & Defense.  The Ukraine, air travel, Asia island contests?  That's all good news here.  Machinery, Metal Fabricating, Railroad & Trucking got upgraded to Attractive. Machinery-Electrical is the dog.

Company to Look at: Boeing BA

(3) Financials are Attractive.  The stock market driven leader is Investment Funds at Very Attractive.  Insurance remains Attractive.  

Company to Look at: Oxford Lane Capital OXLC

(4) Energy got to modestly Attractive. Oil Exploration & Productions is the new leader. Alternative Sources stay Attractive. Oil-Misc fell on hard times, with the rise in the oil risk premium. Coal got a surprise upgrade to Attractive.

(5) Some Utilities stay modestly Attractive. A big upgrade to Utilities-Electric Power means that GDP growth in the U.S. is accelerating and the peak summer air conditioning season is around the corner.  Utilities-Water Supply fell back to a Market Weight this month.

(6) Health Care is Market Weight.  Drugs went from Unattractive to Market.

(7) Consumer Staples is Market Weight.  Surprisingly, Tobacco is the leader here now.  Soaps & Cosmetics stayed a Very Unattractive industry.  Agri-Business got upgraded to Market.

(8) Consumer Discretionary got downgraded.  The sole upgrade was to Home Furnishing-Appliances. Leisure Services fell back to Market, as did Autos-Tires-Trucks.  Publishing and Non-Food Retail are the big dogs.

(9) Materials are Unattractive. Paper got an upgrade to Attractive. Chemicals went Unattractive. Metal-Non-Ferrous went down to Very Unattractive.  Steel went to Unattractive from Very Unattractive.  The goods economy is the U.S. is on, and the turn in China steel demand may be here.

(10) Telcos is a firm Unattractive sector.  This defensive is off in May.

This is an excerpt from John Blank's full Market Strategy article. To download the entire PDF, please click here.