It's June, which means the weather is finally warm in the Northeast and the birds are singing. Wall Street's broad indices are nearly flat for the year, but chances are that we can successfully navigate stocks for a profit.
They might say "Sell in May and Go Away," but the market's major indices actually scored small gains last month after both a tumultuous start and a tumultuous finish to May. Two sectors -- semiconductors and transports -- also outperformed both the S&P 500
Where We Are
First-quarter-earnings season is just about complete, and more than 78% of S&P 500 companies that have reported beat expectations for earnings per share. (Some 14% missed.) The S&P 500's EPS grew 26.3% in aggregate, while revenues rose 8.3%.
The information-technology sector led the way in EPS growth, while health care and the financials won the silver and bronze medals. Tech also led in revenue growth, sporting a 16.1% gain across the space.
All in all, it was another very successful earnings season - and analysts project second-quarter earnings to similarly ring up roughly 20% in year-over-year gains. That should be good enough (at least in theory) to keep equities from succumbing to the mess that is Italy and Spain. It should also be good enough to stay the course as long as Federal Reserve members stay on theirs, and if volatility in the U.S. dollar and West Texas Intermediate crude remains moderately predictable.
The U.S. economy's growth story also seems to remain in place despite officials downwardly revising first-quarter gross-domestic-product growth to a seasonally adjusted 2.2% annual rate. After all, the Atlanta Fed's model for second-quarter GDP growth stands at a solid 4% as I write this.
Now, be mindful that the Atlanta Fed number is more of a snapshot and not so much of a prediction, but it's definitely running hot. Global growth? Not quite as hot as U.S. expansion, but the world economy is still at least growing.
So, here's how I'm playing things as we enter June:
Is oil too cheap? Well, on one side of the equation, India and China continue to increase their energy demands. On the other side, Russia, China, and U.S. shale producers are all champing at the bit to ramp up production and raise some revenue as oil prices trade fairly close to four-year highs.
And while U.S. sanctions on Iran and potentially on Venezuela could cause "holes" in global supply, other producers seem eager to fill them at current prices. So, I'm maintaining a long position in ExxonMobil (XOM) , if for no other reason than the fact that it pays a 4% dividend.
I also like oil-services companies, as they'll less dependent on underlying crude prices and more dependent on production levels that seem poised to rise. My largest longs in the space are oil-services firms Schlumberger (SLB) and Halliburton (HAL) . You might have also noticed that HAL just snagged a fracking deal with Saudi Arabia.
These stocks are generally trading at discount valuations relative to the broader market, and we'll get results from the latest Federal Reserve stress tests on banks on June 22 and 28. Firms that pass these tests can make more money available for dividends and stock-repurchase programs.
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Congress also recently eased the post-2008 Dodd-Frank financial law, reducing how many financial firms the U.S. government considers "Too Big to Fail" (and thus subject to greater regulation). This change will free up capital for regional banks, which should pave the way for more mergers and acquisitions.
At the same time, the Federal Reserve is considering easing the Volcker Rule, which prohibits proprietary trading by banks. That would serve as an extremely welcome change for bigger banks.
I used the banking sector's recent meltdown on the Italian-debt crisis to boost my long positions in Goldman Sachs (GS) and JP Morgan Chase (JPM) . I also continue to maintain a long position in Citigroup (C) .
I don't know what I love more in the tech space -- semiconductors or cloud computing.
DRAM pricing? Suddenly, Micron investors' worries about that have abated amid the company's improved guidance, coupled with a share-repurchase program that's on steroids. As for NAND, Micron plans to work with Intel (INTC) -- another one of my longs -- on next-generation NAND chips.
I'll also stay the course with both Intel and Nvidia (NVDA) , as I believe these are the firms best positioned for whatever comes next in the semi space.
Speaking of what comes next, for the business world, that's cloud computing -- and there's still plenty of room for growth there, especially internationally. My cloud plays include Adobe (ADBE) , Amazon (AMZN) , Microsoft (MSFT) , Salesforce (CRM) and Splunk (SPLK) . That last one seemed like a no-brainer to buy on its recent post-earnings discount.
My Secret Weapon: iQIYI
I could go on and on, but nobody likes it when a son of a gun like me writes forever. So instead of listing all of my positions, I'm going to leave you with my secret weapon -- iQIYI (IQ) , which is kind of a Chinese version of Netflix.
IQ now has 61 million premium subscribers, up from 50.8 million as recently as Dec. 31. The stock's American Depositary Shares have only been public for less than two months, and while I didn't get in on the initial public offering, I'm still up 37% on my position. So, it's hard not to like this one.