There is no waffling. This is a rip-roaring bull market. It may only last another week, or it may last all year, your guess is as good as mine (although I'll offer an educated guess next week). Right now, enjoy it and ride it.
I think Greece is going to default, and the rest of the PIIGS as well, which will derail the world economy at least somewhat, but that is probably a couple months off and right now marginal improvement in the US economy is driving our stocks higher. Or maybe it is QE2 kicking in, with an 18-month lag as any economist would predict. In any case, how to play it?
Since I run long-only strategies, I am by mandate usually fully invested, so in this sort of market I look for the best earnings momentum as my way to ride the bull. Actually, I look for strong earnings momentum in all markets, as upward revisions are among the best indicators of future performance. But in certain markets, earnings momentum works much better and this is one of them. My large-cap growth strategy, one of the two I run along with the dividend capture strategy, is simply en fuego this year. I am up more than 14%, far outpacing the gain in the S&P 500 to date.
What am I playing? Nothing out of the ordinary for me, just the names with the best upward estimate revision trend and (this is important) low valuations. My huge winner so far is Seagate Technology (STX), which has great earnings as they capitalize on disk-drive shortages at their competitors, is trading at 3x forward EPS and pays a healthy 4% yield. Does it get any better than this? Only in beer commercials. STX is up 62% this quarter alone.
Here is an abbreviated list of the names I am choosing from in my large-cap growth strategy. All rank at the top for earnings revisions and all have low P/E multiples. Many I own, many are new purchase candidates. Use this as a starting point to generate ideas for your own further research, as I do.
As you look at the table, you may see you can also gain insights into the best groups to play, if you are a sector rotator. Technology, industrial services and, believe it or not, retail all have a preponderance of names with the best earnings momentum, indicating those are strong groups in which to look for names (or play the ETFs). Retail in particular is intriguing because investors soured on the group after the recent weak government statistics. Retail may be setting up for a good long trade because the analysts doing the on-the-ground research are seeing more strength than weakness and raising their numbers accordingly.