A Pair of Bright Spots

Growth investors are getting a clear message from the market: Don't buy. Contrary to popular belief, now is not the time to try to catch former high-flyers on sale. Many will put in bottoms at some point, but others won't. The bottom line is that it's still too early to tell which ones will be left standing after the selling runs its course. During a market downtrend, most stocks will follow the market lower. A small number of growth stocks have been falling lately due to dire business outlooks and deteriorating fundamentals. Most others, though, have been hit by profit-taking. The strongest ones will eventually firm and start to retest former highs thanks to fresh bouts of institutional buying. I'm sitting mostly in cash with my model growth portfolio. Some might call that boring but I've always viewed cash as a position. I don't let personal opinion tell me to when to be in the market; I let the market tell me when to move in from the sidelines. I learned early on that successful growth investors aren't in the market all the time. Now is not the time to be dabbling in growth stocks, not with broken charts that are seemingly a dime a dozen. But just because certain stocks are holding up well doesn't mean I want to own them now. They'll have a good chance of working when new money starts to come in from the sidelines, but not now. One name that continues to act well is Lululemon Athletica (LULU), a well-run, fast-growing specialty retailer specializing in yoga apparel. It's a high-multiple stock, however, currently selling at 61x trailing earnings and 37x forward earnings. The stock will be held to a high standard when it reports in June. Any sign of slowing growth could bring sellers into the stock, but LULU continues to trade well despite overall weakness in the broader market. It continues to hold near highs after recently finding support at its 10-week moving average. It's on my short list of specialty retailers that still have the potential to lead. Annual earnings are seen rising 29% in fiscal 2013 and 28% in fiscal 2014. Meanwhile, you have to look hard to find other bright spots. Earlier today, TransDigm Group (TDG), a maker of engineered aircraft components, reported strong earnings. Fiscal second-quarter profit jumped 72% while sales increased 39%. TransDigm's growth-through-acquisition strategy continues to reward shareholders. In January, the company announced its second-largest acquisition ever, buying AmSafe Global Holdings, a supplier of restraint equipment, for $750 million in cash and debt. The acquisition allowed TransDigm to raise its full-year outlook above Wall Street estimates. Along with Boeing (BA), TransDigm is one of my two favorite names in the group. It is one of the few technical breakouts that has had staying power in recent weeks. In April, TDG cleared $121.48 in heavy volume. Sellers haven't been anywhere near TransDigm in recent weeks. The stock held gains ahead of earnings. Still, I don't want to chase TransDigm up here because it's extended. It's a good buy candidate on a pullback, but only if comes down to its 10-week moving average -- currently around $120 -- and finds support. Another scenario is that is it starts to move sideways and doesn't correct more than 5%-10% from its recent high. If this happens, a breakout from a new base could happen, presenting a new entry point.

A Pair of Bright Spots

Lululemon and TransDigm continue to act well in a tough market.

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