Good news! Last week, the S&P 500 broke out of a sideways trading pattern, where it had been resting since the late-August U.S. stock market correction. The S&P could easily rise to 2,120 this fall—a 5% move—barring unforeseen bad news.
We’re seeing a bullish rotation into a wide variety of travel and transportation stocks, including airlines, autos, railroads, online travel booking, and cruise ship companies. My model portfolios feature excellent stocks in these sectors, including Carnival (CCL), Delta Air Lines (DAL), General Motors (GM), Priceline (PCLN), Royal Caribbean Cruises (RCL) and Union Pacific (UNP).
Software stocks, which have held the market’s attention this year, continue to show strength. My portfolios include Adobe Systems (ADBE) and Intuit (INTU).
In addition, everybody’s buzzing about a coming shift into financial stocks. In my research, I’ve noticed that many high-quality financial stocks had slow earnings growth in 2015, but are now poised for strong earnings growth in 2016 and 2017. These stocks include banks, brokerage firms and stock exchange companies, but do not include insurance companies.
The charts of financial stocks do not yet match that bullish mood. I’ll continue to review the financial sector for potential additions to the model portfolios in 2016.
My favorite stocks to buy are stocks of companies with strong balance sheets, which appear capable of achieving capital gains very soon. Makes sense, right? In that light, what I’ve learned is that stocks with the most bullish charts—those that are breaking out of trading patterns and those that are reaching new highs—present the best near-term capital gain opportunities. Please consider H&R Block (HRB), Big Lots (BIG) and Chemtura (CHMT) in the model portfolios.
My other favorite time to buy high quality stocks is after a price correction, when the rebound process has begun. In that light, take a look at SanDisk (SNDK), Union Pacific (UNP) and Harman International Industries (HAR).
A change in Bank of New York Mellon’s (BK) earnings outlook caused me to change its rating from Buy to Hold in the Buy Low Opportunities Portfolio.
Growth Portfolio
Growth Portfolio stocks have bullish charts, strong projected earnings growth, little or no dividends, low-to-moderate price/earnings ratios (P/Es) and low-to-moderate debt levels.
Adobe Systems Incorporated (ADBE) is a software company. At last week’s analyst conference, Adobe Systems’ management guided 2016 earnings estimates lower, due to the cost of investments needed to support the company’s growth strategy. Wall Street’s 2016 EPS growth expectation fell from 54% to 37% (November year-end). The market shook it off; the stock price could retrace August’s all-time highs this month. The shares remain undervalued, with a 2016 P/E of 29.7. Rating: Strong Buy.
Chemtura Corporation (CHMT) manufactures specialty chemicals. CHMT’s stock chart became more bullish last week, and could begin reaching new highs as early as this week. There’s price support at 28.50. Rating: Strong Buy.
Delta Air Lines (DAL) is the third-largest passenger airline in the world. The stock appears to be climbing past short-term upside price resistance at 48, toward medium-term resistance at 51. Strong Buy.
D. R. Horton (DHI) is a homebuilder. The company will report fourth-quarter and full-year 2015 results on Tuesday, November 10 before the market opens. Investors are welcome to listen to the earnings webcast that morning at 10:00 AM ET at investor.drhorton.com. Rating: Strong Buy.
Priceline (PCLN) is an online travel company. The stock made progress last week, climbing toward its March 2014 high of 1,379. Traders could sell there, but patient investors should keep PCLN for additional gains in 2016. Rating: Strong Buy.
Royal Caribbean Cruises (RCL) is a cruise vacation company. I expect the stock to surpass its September high of 97.60 this year. Rating: Strong Buy.
Vulcan Materials (VMC) produces construction aggregates. Its technical chart appears conducive to near-term gains. Rating: Strong Buy.
WellCare Health Plans (WCG) will report third-quarter 2015 results on Wednesday, November 4 before the market opens. Investors are welcome to listen to the earnings webcast that morning at 8:30 AM ET at ir.wellcare.com. Rating: Strong Buy.
| Growth Portfolio | |||||
|---|---|---|---|---|---|
| Security (Symbol) | Date Added | Price Added | Price 10/12/15 | Total Return | Rating |
| Adobe Systems (ADBE) | 10/6/15 | 85 | 84 | -2% | Strong Buy |
| Chemtura (CHMT) | 10/6/15 | 31 | 30 | -2% | Strong Buy |
| Delta Air LInes (DAL) | 10/6/15 | 46 | 49 | 6% | Strong Buy |
| D.R. Horton (DHI) | 10/6/15 | 31 | 31 | 2% | Strong Buy |
| Priceline (PCLN) | 10/6/15 | 1,275 | 1,347 | 6% | Strong Buy |
| Royal Caribbean Cruises (RCL) | 10/6/15 | 92 | 93 | 1% | Strong Buy |
| Vulcan Materials (VMC) | 10/6/15 | 94 | 94 | 0% | Strong Buy |
| WellCare Health Plans (WCG) | 10/6/15 | 84 | 85 | 1% | Strong Buy |
| Growth Portfolio Return | 2% | ||||
| S&P 500 | since 10-06-15 | 1,982 | 2,017 | 2% | |
Growth & Income Portfolio
Growth & Income Portfolio stocks have bullish charts, good projected earnings growth, dividends of 1.5% and higher, low-to-moderate price/earnings ratios (P/Es) and low-to-moderate debt levels.
Big Lots (BIG) is a discount retailer. The stock has been bumping up against all-time highs around 50-51 since December 2014. BIG rose to upside price resistance last week, and appears capable of climbing immediately. Rating: Strong Buy.
Carnival (CCL) is a cruise vacation company. All stock investors, who are focused on capital gains, should own travel and/or transportation stocks right now. CCL is an excellent choice! Rating: Strong Buy.
GameStop (GME) is a video game and electronics retailer. GME made a nice upward move last week. When it climbs to 47, it will likely pull back and trade between 44-47 for a short while, before pushing higher. Rating: Strong Buy.
General Motors (GM) is an automobile manufacturer. GM rose nicely last week. All stock investors should consider owning GM, especially if the price dips to 32 in the coming days. GM shares have been trading between 29-42, with upside price resistance at 36. Rating: Strong Buy.
H&R Block (HRB) is a leader in tax preparation services. Last week, the company announced that it repurchased 40.5 million shares of common stock via its recent Dutch tender offer. The stock reached all-time highs this month, then pulled back a bit. Rating: Strong Buy.
SanDisk (SNDK) provides flash storage solutions. SNDK rose $5 last week, then pulled back a little. I expect SNDK to be a top performer in the Growth & Income Portfolio. Rating: Strong Buy.
Union Pacific (UNP) is a railroad company. UNP shares are recovering from this year’s steady decline. Nobody’s missed their chance to buy UNP and make double-digit capital gains on the rebound! Investors should expect significant upside price resistance after the stock surpasses 120. Rating: Strong Buy.
| Growth & Income Portfolio | |||||
|---|---|---|---|---|---|
| Security (Symbol) | Date Added | Price Added | Price 10/12/15 | Total Return | Rating |
| Big Lots (BIG) | 10/6/15 | 49 | 50 | 2% | Strong Buy |
| Carnival (CCL) | 10/6/15 | 50 | 50 | 0% | Strong Buy |
| General Motors (GM) | 10/6/15 | 32 | 33 | 3% | Strong Buy |
| GameStop (GME) | 10/6/15 | 43 | 44 | 2% | Strong Buy |
| H&R Block (HRB) | 10/6/15 | 36 | 35 | -3% | Strong Buy |
| SanDisk (SNDK) | 10/6/15 | 62 | 63 | 2% | Strong Buy |
| Union Pacific (UNP) | 10/6/15 | 94 | 95 | 1% | Strong Buy |
| Growth & Income Portfolio Return | 1% | ||||
| Dow Jones 30 Industrials | since 10-06-15 | 16,790 | 17,132 | 2% | |
Buy Low Portfolio
Buy Low Portfolio stocks have neutral charts, strong projected earnings growth, low-to-moderate price/earnings ratios (P/Es) and low-to-moderate debt levels. (Dividends are not a portfolio requirement, but some of the stocks will have dividends.) Investors should be willing to wait patiently for these stocks to climb.
The Bank of New York Mellon (BK) is a global investment manager. Wall Street’s consensus earnings estimates for BK’s FY2016 came down last week. Based on the new number, the stock is fairly valued. However, the chart indicates that the stock appears poised for additional near-term capital gains. A rebound to the recent August high of 45 would deliver another 10% profit. There’s longer-term upside price resistance at 49-50. Rating: Hold.
The Boeing Company (BA) is an aerospace company. Boeing’s stock broke out of its recent trading range last week. The stock could climb as high as 147 before settling into a new trading range. Rating: Buy.
Harman International Industries (HAR) manufactures in-car technology and entertainment systems. The stock has begun its recovery from the August market correction, and could reach short-term upside price resistance, around 116-119, fairly quickly. Rating: Buy.
Intuit (INTU) is an industry leader in financial management software solutions. The stock fell dramatically with the August stock market correction, then began an immediate rebound. Traders should be prepared to sell later this year around 104-106. All other shareholders should hold the stock for additional capital gains in 2016. Rating: Buy
Johnson Controls (JCI) operates in the areas of energy management and auto batteries. The stock could climb quickly to 46, then pause a bit before continuing its rebound toward medium-term resistance in the low 50s. Rating: Buy.
Robert Half International (RHI) is a staffing and consulting company. The stock has begun its rebound toward upside price resistance at 58. Rating: Buy.
| Buy Low Portfolio | |||||
|---|---|---|---|---|---|
| Security (Symbol) | Date Added | Price Added | Price 10/12/15 | Total Return | Rating |
| Bank of New York Mellon (BK) | 10/6/15 | 40 | 40 | 0% | Buy |
| The Boeing Company (BA) | 10/6/15 | 135 | 141 | 4% | Buy |
| Harman International Industries (HAR) | 10/6/15 | 105 | 107 | 2% | Buy |
| Intuit (INTU) | 10/6/15 | 91 | 93 | 2% | Buy |
| Johnson Controls (JCI) | 10/6/15 | 43 | 44 | 2% | Buy |
| Robert Half International (RHI) | 10/6/15 | 51 | 53 | 4% | Buy |
| Buy Low Portfolio Return | 2% | ||||
| Dow Jones 30 Industrials | since 10-06-15 | 16,790 | 17,132 | 2% | |