Wednesday's selling of technology stocks is gaining some momentum Thursday morning but the Dow Jones Industrial Average continues to cover up the underlying weakness. While breadth is still positive it is fading and the strongest evidence of some topping action is that the number of new highs has contracted to around 135.
The S&P 500 is taking out intraday lows as I write and, in addition to the weakness in technology, semiconductors and FAANG names, the biotechnology group is looking poor. Even the "pot stocks" are taking a rest, although I have started a position in low-priced name New Age Beverages (NBEV) , which sells cannabis-infused soft drinks under the Bob Marley brand. I'm also looking to do some dip buying in the biotechnology group but am moving very slow for now.
One stock that is benefiting from the rotation out of technology names is Honeywell (HON) . Action Alerts PLUS holding Honeywell has been trending strong since a positive second-quarter earnings report. The company beat estimates and raised guidance. The stock has also benefited from a spinoff of a subsidiary, which will begin trading later this month.
Honeywell trades at a trailing 12 months P/E multiple of 21x and is looking at EPS growth of 9% in 2019. That isn't a particularly cheap valuation, but the market is anticipating that those estimates will be revised upward. Large-cap names such as Honeywell provide good visibility and consistency and that will justify a higher multiple.
The key is that Honeywell continues to beat estimates and that is often a product of astute management finding ways to manage expectations. Honeywell management does a good job in the regard.
The biggest positive that Honeywell enjoys right now is that the stock has strong momentum. Institutional buyers tend to play "follow the leader" and Honeywell works well if you are playing the game. Analysts are bullish, the stock is strong and it has not yet hit a new high.
If you want to put money into a stock that is enjoying a positive rotation and good relative strength then Honeywell is a good choice.