Last Friday, the February jobs report came in much-better-than expected. The U.S. economy added 313,000 jobs for the month, much more than the 200,000 that economists had been expecting.
A strengthening economy bodes well for one group in particular: Banks.
As the economy continues to strengthen, it reinforces the thesis for higher interest rates. When the Federal Reserve boosts rates, it pads the bottom line for big banks like Bank of America Corp (BAC - Get Report) , JPMorgan Chase & Co. (JPM - Get Report) , Goldman Sachs Group Inc. (GS - Get Report) and others.
Not only do higher rates translate to larger profits, but a more robust economy means more banking, too. More car and home loans, more M&A and more borrowing all benefit the banks. With Bank of America stock enjoying new highs, and JPMorgan and Goldman Sachs right behind it, sticking with this sector may be a good idea for investors.
The valuations are dirt cheap, they all pay a dividend and the operating environment is robust. What more could you ask for?
One fear for higher interest rates is mortgage rates. When mortgage rates get too high, it could temper the housing market as home affordability falls. A decline in ownership is bad for companies like Home Depot Inc. (HD - Get Report) .
However, in its most recent conference call, Home Depot management told investors that it wouldn't be until mortgage rates hit 7% before it would start to impact business. In that sense, we've got some time before we need to worry about any kind of slowdown at the home improvement retailer.
A few weeks ago, Home Depot gave investors a great quarterly result. After beating on top and bottom line estimates and growing sales by more than 10% year-over-year, Home Depot also reported comparable-store sales results of 7.5%. That's a hot number for a retailer in general and pretty darn good for a company that's already been doing well for so long. For the record, analysts were only looking for comp-store sales results of 6.5%.
Despite the company beating on earnings, revenue and comp-store sales, as well as providing solid guidance, the stock actually fell after the results. That's also despite Home Depot being on the cusp of entering the seasonally strong spring months.
We chalk this one up to a buying opportunity, given how well Home Depot continues to do.
It's all about the cloud, all about the cloud...
At least, that's what it feels like after listening to a dozen or so conference calls over the past few months from cloud-based companies. In a nutshell, cloud companies continue to churn out massive growth and have a long runway for future success.
The Windows-makers just hit another all-time high on Monday. While it can be tough chasing a stock making new highs, Microsoft may be worth the bet. Traders can keep a tight stop-loss on the trade if they'd like. Long-term investors can stick with buying a small initial position if they're worried about a less-attractive risk/reward.
It also sports the lowest valuation of the three (and many more in the cloud), has a massive cash balance and pays out a respectable dividend yield of 1.75%. You could do worse than betting on Microsoft.
Microsoft, Amazon, Alphabet, JPMorgan and Goldman Sachs are holdings in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells MSFT, AMZN, GOOGL, JPM or GS? Learn more now.
Watch NYSE trader Kenny Polcari reveal his stock market outlook for this week: