Stocks Under $10 Portfolio: ON Semi and McDermott Make Bold Moves

 | Nov 27, 2016 | 12:00 PM EST
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The following is an excerpt from the Stocks Under $10 Weekly Roundup originally sent to Stocks Under $10 subscribers on Nov. 25. Click here to learn more about this dynamic portfolio managed by David Peltier.

Trading was light because of the holiday, but U.S. stocks added 2% to recent gains this week. We didn't make any trades for the model portfolio this week, but there were several notable movers.

First, ON Semiconductor (ON)  was the big winner of the week, moving 10% higher. The chip sector has rallied of late, on the prospect of continued consolidation among the small- and mid-size players.

McDermott (MDR)  also gained 5%, along with the underlying price of oil. That said, the volatility will likely remain high in the sector ahead of next week's OPEC meeting. We'd consider booking some profits in the near term, with the stock approaching our price target of $6.50.

Builders FirstSource (BLDR) moved 4% higher this week. Seaport Global started coverage of the company on Tuesday, with a Buy rating and $16 price target. We maintain the company is inexpensive at 11.6x expected 2017 earnings.

On the other hand, Unilife (UNIS) lost 9% this week on little news. But we continue to believe that the new management team can get the company back on the right track in the coming quarters.

While there was limited volume, we still digested a lot of economic data this week. Consumer confidence, existing home sales and durable goods orders all came in ahead of expectations and weekly mortgage applications rebounded, while new home sales fell short of the consensus analyst estimate.

Looking ahead to next week, we'll see several more economic reports, as the calendar changes to December. We'll get the first revision to third-quarter GDP growth on Tuesday, followed by the Fed's beige book on Wednesday. Thursday offers a look at monthly vehicle sales, followed by the November jobs data on Friday.

Economists are looking for the addition of 175,000 nonfarm payrolls in the month, up from 161,000 in October. This includes 170,000 private jobs and expectations for the headline unemployment rate to remain at 4.9%.

Investors have plenty to be thankful for, as the benchmark Russell 2000 index has moved higher 14 of the past 15 sessions -- with the one down day being a 0.01 point loss. The model portfolio has benefitted along the way, and is now up about 20% year to date. That being said, we will continue to maintain our trading discipline, as we prepare the model portfolio for 2017 and beyond.

For one thing, Fed funds futures are pricing in a 93% chance of an interest rate hike at the December meeting. Higher interest rates can be a sign that the economy is expected to grow faster, but higher borrowing costs can also stem profit growth.

As a result, we have an above-average, 35%, cash position in the model portfolio. We had put money to work in October and early November, but resumed our strategy of peeling profits off the table into the most recent rally to new all-time highs in the broader market averages.

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