After a wild ride, the U.S. stock market ended October at a record high and is seeing extended multi-year highs to start November. Robust corporate earnings, higher-than-expected U.S. GDP growth numbers, upbeat global economic indicators and hopes of a new stimulus from European Central Bank (ECB) to prop up the continent's ailing economy are driving the stocks higher (read: Best and Worst ETFs of October).
A surprise expansion of the massive monetary stimulus program by the Bank of Japan last week also spurred the rally. This trend is likely to continue as we close out the year given bullish fundamentals, strong momentum and positive market breadth. Our optimism is raised further by the belief that, “November is the most bullish month for the U.S. stocks.”
The maxim stems from the historical outperformance of the market during the six-month period (from November to April) since 1950. In fact, November has been the second best performing month over the past two decades. This suggests that investors should buy stocks during this traditionally bustling time for the market.
While this isn't enough, November has also been considered a booster month in the fourth quarter since 1928 due to mid-term elections, according to the S&P Capital IQ data. This is because market generally tends to do better on the Election Day and in several days following it. If we look at the history, stocks have gained 86% of the times in the 90 days after midterm elections (read: Can Brazil ETFs Rebound After the Hard-Fought Election?).
Moreover, seasonality plays a vital role in the stock market surge in this six-month period and cyclical stocks including consumer discretionary, industrials, financials, technology and materials will likely benefit the most. This is especially true as investors look for more growth rather than being defensive when cyclical trade starts.
This year, though the midterm elections are going to be held today, we suggest investors to be extra careful while trading as this November marks the first month in two years when the Fed will not inject billions of dollars into the financial market. Further, we can well expect volatile trading when speculations about the timing of interest rates hikes start taking the center stage early next year.
Keeping in mind both pros and cons, we have highlighted two ETFs and two stocks that could be better plays for investors to ride out the upcoming surge with lower risk. Our picks are backed by intense research.
Top ETF Choices
We have found a number of ETFs that have the top Zacks ETF Rank of 1 or “Strong Buy' in the space and are thus expected to outperform in the months to come. Then, we cut down the list to the top performing ETFs from the year-to-date period and those that easily crushed the broad market fund (SPY) by wide margins (read: all the Top Ranked ETFs).
iShares Dow Jones US Technology ETF (IYW)
This ETF tracks the Dow Jones US Technology Index, giving investors exposure to the broad technology space. The fund holds 146 stocks in its basket with AUM of $4.7 billion while charging 43 bps in fees and expense. Volume is solid as it exchanges nearly 490,000 shares in hand a day (read: 4 Great Reasons to Buy These Top Ranked Tech ETFs).
Apple (AAPL) and Microsoft (MSFT) occupy the top two positions in the basket with 19.03% and 11.38% of assets, respectively, while other firms account for less than 5% share. IYW is a large cap centric fund as 84% of the assets go to this market cap level. However, the portfolio is almost evenly split between technology hardware and equipment, and software and computer services. The fund has added over 16% in the year-to-date time frame.
iShares Dow Jones Transportation Average Fund (IYT)
This fund targets the transportation corner of the broad U.S. equity market by tracking the Dow Jones Transportation Average Index. In total, the product holds 21 securities with the largest allocation going to FedEx (FDX), Kansas City Southern (KSU) and Union Pacific (UNP). The three firms combine to make up for 27.3% share. The ETF has a certain tilt toward large cap stocks at 47% while mid and small caps account for 42% and 11% share, respectively, in the basket.
From a sector perspective, railroad takes the top spot with one-fourth share, while delivery service (22.5%) and trucking (18.0%) round off to the top three. The fund has accumulated $1.6 billion in AUM while sees good trading volume of more than 373,000 shares a day. It charges 43 bps in annual fees and has gained about 19.8% so far in the year (read: Transport ETFs Drive Up on Robust Q3 Earnings).
Top Stock Choices
For stocks, we have chosen top picks using the Zacks Screener that fits our five criteria: stock Zacks Rank #1 (Strong Buy), Industry Rank in the top 20, positive estimate revision for the current year, positive earnings surprise over the past four quarters and year-to-date price performance in excess of the broad market returns. Here are the two recommended stocks.
Sanmina Corp (SANM)
Sanmina, having a solid Zacks industry rank (in the top 1%), provides electronics contract manufacturing services around the globe. It offers product design and engineering services, circuit fabrication, system assembly, integration, and high-end enclosures and cabling.
The company has seen solid earnings estimate revisions of 13.04% over the past 30 days for the current fiscal year. It delivered positive earnings surprises in the last four quarters, with an average beat of 12.73%. The stock is up 46.6% in the year-to-date time frame. All these indicate a bright future for Sanmina.
Pilgrims Pride Corp. (PPC)
This company is one of the largest chicken companies in the U.S., Mexico and Puerto Rico and is engaged in the production, processing, marketing, and distribution of fresh, frozen, and value-added chicken products to retailers, distributors, and foodservice operators. PPC has also seen rising estimates of 10.8% for the current fiscal year over the past one month and has delivered average positive earnings surprises of 9.44% in the last four quarters (read: Beef Up Your Portfolio with These Livestock ETFs).
Pilgrims Pride falls in in the Food-Meat products industry, which has a solid Zacks Rank in the top 4%, suggesting the company's potential to grow in the coming months. The stock has returned about 67.9% so far in the year.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
ISHARS-US TECH (IYW): ETF Research Reports
ISHARS-TRAN AVG (IYT): ETF Research Reports
SANMINA CORP (SANM): Free Stock Analysis Report
PILGRIMS PRIDE (PPC): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
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The maxim stems from the historical outperformance of the market during the six-month period (from November to April) since 1950. In fact, November has been the second best performing month over the past two decades. This suggests that investors should buy stocks during this traditionally bustling time for the market.
While this isn't enough, November has also been considered a booster month in the fourth quarter since 1928 due to mid-term elections, according to the S&P Capital IQ data. This is because market generally tends to do better on the Election Day and in several days following it. If we look at the history, stocks have gained 86% of the times in the 90 days after midterm elections (read: Can Brazil ETFs Rebound After the Hard-Fought Election?).
Moreover, seasonality plays a vital role in the stock market surge in this six-month period and cyclical stocks including consumer discretionary, industrials, financials, technology and materials will likely benefit the most. This is especially true as investors look for more growth rather than being defensive when cyclical trade starts.
This year, though the midterm elections are going to be held today, we suggest investors to be extra careful while trading as this November marks the first month in two years when the Fed will not inject billions of dollars into the financial market. Further, we can well expect volatile trading when speculations about the timing of interest rates hikes start taking the center stage early next year.
Keeping in mind both pros and cons, we have highlighted two ETFs and two stocks that could be better plays for investors to ride out the upcoming surge with lower risk. Our picks are backed by intense research.
Top ETF Choices
We have found a number of ETFs that have the top Zacks ETF Rank of 1 or “Strong Buy' in the space and are thus expected to outperform in the months to come. Then, we cut down the list to the top performing ETFs from the year-to-date period and those that easily crushed the broad market fund (SPY) by wide margins (read: all the Top Ranked ETFs).
iShares Dow Jones US Technology ETF (IYW)
This ETF tracks the Dow Jones US Technology Index, giving investors exposure to the broad technology space. The fund holds 146 stocks in its basket with AUM of $4.7 billion while charging 43 bps in fees and expense. Volume is solid as it exchanges nearly 490,000 shares in hand a day (read: 4 Great Reasons to Buy These Top Ranked Tech ETFs).
Apple (AAPL) and Microsoft (MSFT) occupy the top two positions in the basket with 19.03% and 11.38% of assets, respectively, while other firms account for less than 5% share. IYW is a large cap centric fund as 84% of the assets go to this market cap level. However, the portfolio is almost evenly split between technology hardware and equipment, and software and computer services. The fund has added over 16% in the year-to-date time frame.
iShares Dow Jones Transportation Average Fund (IYT)
This fund targets the transportation corner of the broad U.S. equity market by tracking the Dow Jones Transportation Average Index. In total, the product holds 21 securities with the largest allocation going to FedEx (FDX), Kansas City Southern (KSU) and Union Pacific (UNP). The three firms combine to make up for 27.3% share. The ETF has a certain tilt toward large cap stocks at 47% while mid and small caps account for 42% and 11% share, respectively, in the basket.
From a sector perspective, railroad takes the top spot with one-fourth share, while delivery service (22.5%) and trucking (18.0%) round off to the top three. The fund has accumulated $1.6 billion in AUM while sees good trading volume of more than 373,000 shares a day. It charges 43 bps in annual fees and has gained about 19.8% so far in the year (read: Transport ETFs Drive Up on Robust Q3 Earnings).
Top Stock Choices
For stocks, we have chosen top picks using the Zacks Screener that fits our five criteria: stock Zacks Rank #1 (Strong Buy), Industry Rank in the top 20, positive estimate revision for the current year, positive earnings surprise over the past four quarters and year-to-date price performance in excess of the broad market returns. Here are the two recommended stocks.
Sanmina Corp (SANM)
Sanmina, having a solid Zacks industry rank (in the top 1%), provides electronics contract manufacturing services around the globe. It offers product design and engineering services, circuit fabrication, system assembly, integration, and high-end enclosures and cabling.
The company has seen solid earnings estimate revisions of 13.04% over the past 30 days for the current fiscal year. It delivered positive earnings surprises in the last four quarters, with an average beat of 12.73%. The stock is up 46.6% in the year-to-date time frame. All these indicate a bright future for Sanmina.
Pilgrims Pride Corp. (PPC)
This company is one of the largest chicken companies in the U.S., Mexico and Puerto Rico and is engaged in the production, processing, marketing, and distribution of fresh, frozen, and value-added chicken products to retailers, distributors, and foodservice operators. PPC has also seen rising estimates of 10.8% for the current fiscal year over the past one month and has delivered average positive earnings surprises of 9.44% in the last four quarters (read: Beef Up Your Portfolio with These Livestock ETFs).
Pilgrims Pride falls in in the Food-Meat products industry, which has a solid Zacks Rank in the top 4%, suggesting the company's potential to grow in the coming months. The stock has returned about 67.9% so far in the year.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
ISHARS-US TECH (IYW): ETF Research Reports
ISHARS-TRAN AVG (IYT): ETF Research Reports
SANMINA CORP (SANM): Free Stock Analysis Report
PILGRIMS PRIDE (PPC): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
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