Haves and Have Nots

Editor's note: As part of our partnership with Nightly Business Report, TheStreet's Jill Malandrino of OptionsProfits will join NBR Monday (check local listings) to look at stock ideas that represent outperformance in the market.

As the market continues its slow grind upward, institutional traders and retail investors alike question the rally on lack of trading volume. From the retail perspective, many long-term investors are disenchanted with the market place, in general, following confidence fails with Principal Financial Group ( PFG), Knight ( KCG) and name brand recognition IPOs such as Facebook ( FB) and Groupon ( GRPN). Are they worrying too much? Yes, it is true that share volume has trended lower since late 2008, breaking a multiple decade trend of expanded trading activity. Michael Santoli of Barron's pointed out that this could merely be a partial give-back from the huge tripling of volume from 2004-09. And it makes complete sense. Think about it. A big part of this can be attributed to the explosion of high-frequency trading (HFT) and, obviously, the financial crisis. I also correlate it to what we have seen in China -- a sort of give back in growth data following a surge in her economy in just the past decade alone. It may not be as much of a slowdown, but more of an indication of true demand.

Another reason for lower volume is the CBOE Volatility Index (VIX) is at the low end of a five-year range. It does not necessarily mean fear is out of the market or investors are complacent. On a more technical level, a big part of it is the way the VIX is structured and due to timing cycles. But one thing for sure is traders expect volatility to pop in September and October based on trading in VIX and futures markets and that is a big contributing factor as to why volume is lower now in addition to the traditional summer slowdown. So it's not related to investors breaking out the party hats, it's due to no new money coming to market.

Have investors missed out, yet again, on participating in the upward trend? Absolutely not. There are plenty of companies that have proven their worth in a tough macro environment that boast healthy balance sheets and continue to reward investors. As always, diversifying across multiple sectors and investment style is key. So, let's put on our trading caps and take a look at two longer-term buys in two very different sectors.

Although tech overall has been an outperformer in 2012, there are very clear leaders within the space, most notably mega cap. These cash rich dividend players, even at these levels, are cheap and are still focused on growth. IBM ( IBM) is one of my favorite companies in mega-cap tech land. Earnings for 1H12 were quality and Big Blue took the dividend up 13% from last year. In 2009, IBM reported $10.00 per share and consensus expects $16.90 in 2014 - that's 69% in just over five years, which is tremendous for a company with a $200 billion market cap -- and you get paid the dividend for holding the stock. But, what I love even more is IBM is still growing and focusing on significant expansion in the analytics space which is one of the fastest growing spaces the company operates in. IBM is up 14%, year-to-date, and 46%, year-over-year, and it still represents an excellent value. This is a quality name with solid management that is executing on all metrics. I would own this as a core portfolio holding. Given increasing signs of economic slowing, IBM's diverse portfolio, exposure to emerging markets and emphasis on profitability reinforce the defensive appeal of the shares, and I believe they can get to $225, which represents 12.5% upside.

Moving along to the world of retail, this has certainly been a case of the "haves" and "have nots," with luxury brands outperforming more middle-of-the-road stocks, such as Macy's ( M) and JCPenney ( JCP). Again, the key to investing in this market is identifying trends pick your spots in quality companies, and brand recognition has been a huge factor in performance. Michael Kors ( KORS) is an IPO name that reported excellent earnings for 1Q13. Revenue grew 71% to $425 million, led by new stores and 38% same-store sales growth in North America. The revenue was significantly higher than the consensus estimate. Earnings were also much better than the Street predicted, growing 162%, year-over-year, to $0.34 per share, exceeding estimates by $0.14. KORS also expects to earn $1.32-$1.34 during its second quarter on revenue of $490 million to $500 million. I believe it has the ability to steal market share from competitors like Coach ( COH), and would look to add to existing positions or open a new long. I think the stock could get to $60, representing 15% upside.

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