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One of the industrial themes that I have been focused on has been the recovery potential in the US non-residential construction market. Non-residential construction activity typically follows residential construction, which has seen steady improvement over the last 2 years due to an improving economy, low interest rates, improving pent-up demand, and better affordability.
Since my investment bias is a GARP style, I always look for groups and stocks that have lagged the broader averages. One group that has lagged for a while has been the home builder stocks - and that's piqued my interest.
Some of the aerospace stocks have stalled recently after a putting up stellar performance last year, including one of my long time favorites - Precision Castparts. I like it here on the pullback and see a few catalysts to move the shares back up to its highs.
I am sticking with my recommendation of a Panera turnaround - and think this multi-year restructuring will eventually lead to better earnings and growth. It may not happen in the next quarter or two, but I believe it will happen and for those who have a little longer term horizon the stock is a buy.
The industrial stocks are one of my favorite sectors in the S&P 500 and have been over the past several months. We own quite a few in Action Alerts PLUS, Jim Cramer's Charitable Trust, with our two largest positions being Eaton and Johnson Controls. The industrial sector is one of the most levered to an improving economy and also to higher interest rates. Over the last few weeks, I've been encouraged to see the pickup in several manufacturing economic data points.
The fundamentals are strong and the valuation points to opportunity. I have followed Discover Financial since the days when it was spun off from Morgan Stanley in July 2007. It issues both credit and debit cards, provides other loans and operates one of four major payment networks that process and clear point-of-sale purchases in the U.S.
Action Alerts PLUS has picked up more Goldman after encouraging words from the Fed.
The financials have had a rocky start to 2014 after starting the year strong out of the gate. I like the sector because I think the U.S. economy is on the mend and as the data improves, so will loan growth. Plus, a better economy should lead to a steeper yield curve, helping to lift Net Interest Income and Net Interest Margins - in turn, helping profitability levels.
It's been a pretty volatile last 12 months of sports apparel maker, Lululemon. After being the darling on Wall Street for many years with double digit growth, superior execution and exciting sports apparel products, the company stumbled in 2013 and shares have fallen 34% from its highs.
If you'd read some of my posts on my blog, you'll notice a pattern. I like turnaround stories, management changes, and restructurings. Companies that have been mismanaged but have a brand name and potential for market share gains, revenue upside and potential for margins to recover which in turn could lead to positive operating leverage. Based on this theme, my next idea is Diebold.