Rules of the Game: Skimming in Downtrodden Sectors

 | Mar 01, 2013 | 1:00 PM EST  | Comments
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

lnkd

,

symc

Although I'm not a big fan of rotating in and out of sectors, I do like to track where the strength lies, as it can give significant clues into overall market action. It's also crucial information for investors who like juicing up their portfolios with added exposure to particular sectors.

With that in mind, pretty much everyone who pays attention to the market has noticed the lag in S&P information technology so far this year. The top holding in the Technology Select Sector SPDR ETF (XLK) is Apple (AAPL), representing 14.39% of the fund. That stock is down 17% year to date, while the XLK has gained 2.7% so far in 2013.

But, as regular readers know, I always like to dig a little deeper and see where there might be underlying strength -- even in sector that is currently weak.

Amid my scan of large-cap tech names, the top technical performer turned out to be LinkedIn (LNKD), which has risen more than 46% so far this year. Earnings have grown at triple-digit rates in four of the past five quarters, and revenue has increased at 81% or more in each of the past eight quarters.

Although it's considered a tech, according to traditional classifications, I view LinkedIn as more of a consumer/media name. Even so, its youth contributes to its propensity for volatility. The stock went public at $45 less than two years ago, in May 2011, and recent IPOs are often among the market's best price movers. But youthful names can also show some volatile trade, and LinkedIn is testimony to that, with a beta of 1.33.

So what about those over-the-top technicals? The stock closed Thursday at $168.18, 29.7% above its 50-day moving average and $49.3% above its 200-day. That can be off-putting for traders and investors alike. To be sure, it is frustrating to buy a stock near its 52-week high, only for it to inevitably pull back as others take profits. That's why it can often be prudent to wait for a pullback with support at a moving average, as this can offer a new chance to enter.

Another large-cap tech that made it to the top of this week's scan was network-security specialist Symantec (SYMC). Unlike LinkedIn, this is a mature name with a longer trading history.

But it, too, has a high beta: 1.32. A glance at Symantec's chart shows you that it frequently exhibits erratic intra-week trade.

Symantec ended Thursday's session at $23.44, a multiyear closing high. The same caution I noted about LinkedIn applies here: If you don't like the risk of buying at highs, and then seeing the stock surrender value soon after, simply wait for the next pullback with moving-average support.   

The earnings growth here isn't as robust as it is at a young stock like LinkedIn, but it still shows potential. Analysts see Symantec's bottom line rising 6% this year to $1.71 per share. Next year, that's seen up another 12% to $1.92 per share.

That kind of profit growth can be promising, especially for a well-established large cap like Symantec. The volatility, meanwhile, could make the stock difficult for impatient investors to hold -- so those who are inclined to buy a stock, and then exit in a panic, may wish to look at other ideas.

Columnist Conversations

HLF closed Wednesday trading at $43.63, down small with IV30™ down 3.2%. Conclusion HLF is down 40% sinc...
The Russell 2000 has led the broader market lower and today it returned to its 2014 lows, the bottom end of a ...
Here are the next potential support decisions to watch in SPX cash. Note that the current decline is only sim...

BEST IDEAS

REAL MONEY'S BEST IDEAS

Columnist Tweets

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.