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12-6-18: Earnings Busters Alerts for Friday, December 7, 2018
BUY: KEMET Corporation (KEM)
SELL: Terex Corporation (TEX)
Details are in the Earnings Busters newsletter.
12-4-18: Weekly Stock Ratings Changes Now Available
This week's Stock Ratings Changes report is available for downloading.
12-3-18: New Defensive Equity Portfolio Launched
A new Sabrient Defensive Equity UIT (FIZLJX), 18th in the series, was launched by First Trust Portfolios on November 29, 2018. This UIT seeks to find companies that are positioned to perform well in environments of falling stock prices but also those companies that have the potential to provide solid performance in rising markets. The stocks in the portfolio are selected through an investment strategy process developed by Sabrient. The portfolio will terminate on March 2, 2020. For a fact sheet or prospectus, please visit FirstTrustPortfolios.com.
11-20-18: Baker's Dozen Model Portfolio for November 2018 Has Launched
The November 2018 Sabrient Baker's Dozen Model Portfolio was launched on November 20, 2018. This portfolio, like all Baker's Dozen portfolios, comprises 13 top-ranked stocks from a cross-section of market caps and industries based on our GARP approach, i.e., growth at a reasonable price. Sabrient believes each of these stocks is positioned to perform well for the next 12 months. The portfolio will terminate on November 21, 2019. To see the model portfolio stock list, please visit the Sabrient Baker's Dozen website.
11-19-18: New Rising Rate Portfolio Launched
A new Sabrient Rising Rate Portfolio (FTAGOX)) -- 10th in the series -- was launched by First Trust Portfolios on November 16, 2018. Historically, certain stocks have outperformed the market in periods during which longer-term Treasury bonds have rising yields, and Sabrient believes 10-year and longer Treasury yields are likely to rise over the next several years. The Sabrient Rising Rate Portfolio is a unit investment trust that seeks to find companies that Sabrient believes are positioned to perform well in environments of rising Treasury yields. The portfolio will terminate on November 16, 2020. For a fact sheet or prospectus, please visit FirstTrustPortfolios.com.
11-13-18: Weekly Stock Ratings Changes Now Available
This week's Stock Ratings Changes report is available for downloading.
11-08-18: Earnings Busters Alerts for Friday, November 9, 2018
BUY: The Mosaic Company (MOS)
SELL: Nexstar Media Group, Inc. (NXST)
Details are in the Earnings Busters newsletter.
11-6-18: Weekly Stock Ratings Changes Now Available
This week's Stock Ratings Changes report is available for downloading.
11-5-18: Sector Detector: October washout serves up compelling buying opportunity at lower forward valuations
by Scott Martindale
President, Sabrient Systems
The escalating trade standoff with China, an increasingly hawkish Federal Reserve, and the impending mid-term elections finally took a toll on investor psyche, creating a rush to the exits in October as concern rises about the sustainability of the ultra-strong corporate earnings given China's key role in global supply chains. Even some sell-side analysts have seen fit to slightly trim Q4's strong earnings estimates. Nonetheless, the month ended with an encouraging rally from deeply oversold technical conditions. Overall, Sabrient's model continues to suggest that little has changed with the positive fundamental outlook characterized by solid global economic growth, strong US corporate earnings, modest inflation, low real interest rates (despite incremental rate hikes), a stable global banking system, and historic fiscal stimulus in the US (especially corporate tax cuts and deregulation) that is only starting to have an impact on all-important capital spending. Also worth mentioning are the Consumer Confidence Index, which rose to its highest level in 18 years, and the Small Business Optimism Index, which continues with the longest streak of sustained optimism in its 45-year history.
Although the S&P 500 managed to plod its way upward during the summer and hit new highs well into September, a dramatic risk-off defensive rotation commenced in mid-June reflecting cautious investor sentiment, which disproportionately impacted Sabrient's cyclicals-heavy portfolios. But this was not a healthy rotation. In fact, I wrote during the summer that the market wouldn't be able to move much higher without renewed breadth and leadership from cyclicals. But instead of a risk-on rotation to recharge bullish conviction, we got a big market sell-off in October. Notably, such a pullback is normal in mid-term election years, but what is also normal is a strongly positive market move over the course of the 12 months following the mid-terms.
Last week's fledgling recovery rally from severely oversold technical conditions showed promising risk-on action -- and some relative performance catch-up in Sabrient's portfolios. Thus, while the aggregate earnings outlooks for companies in the cyclical sectors and smaller caps have held steady or in many cases improved, shares prices have fallen dramatically, making the forward P/Es in these market segments much more attractive, while forward P/Es in the defensive sectors have become quite pricey. Read more at Scott Martindale's blog
10-31-18: New accounting standard on leases: Potential impacts on earnings quality and management behavior
by Bradley Cipriano, CPA
Equity Analyst, Gradient Analytics LLC (a Sabrient Systems company)
At Gradient Analytics, our forensic accounting analysis includes assessing the quality of a company's reported earnings and the strength of its balance sheet. A key element of this process is understanding whether recently reported growth is sustainable and whether forward expectations are reasonable. New GAAP (Generally Accepted Accounting Principles) standards -- such as Contracts with Customers (ASC 606), which went into effect at the beginning of this year -- have distorted year-over-year growth figures, such that it has become routinely necessary for an investor/analyst to adjust income statement and balance sheet accounts to get a clearer like-for-like comparison. For example, ARRIS International plc (ARRS) has grown 2018 YTD GAAP EPS by $0.17, which includes an $0.18 benefit from ASC 606. So, while ARRS is showing earnings growth on the surface, its comparable YOY earnings have actually declined. Understanding how new accounting standards can be manipulated to positively impact earnings can help investors better assess reported results.
While such new standards are often viewed as "a wash" since there is no change to the underlying economics of a business, the changes under the new leasing standard Leases (ASC 842), which is coming into effect in 2019, may prove quite material for certain corporate filers. The new leasing standard follows a convergence in accounting principles between International Financial Reporting Standards (IFRS) and U.S. GAAP to improve comparability among different filers. Currently, operating leases (which are similar to debt) are disclosed off-balance sheet in the footnotes with limited qualitative or quantitative disclosures. But following the adoption of the leasing standard, this debt must be brought back onto the financial statements along with increased disclosure requirements. It is important to question why a company has relied on off-balance sheet debt in the past to better understand the risks that may surface once this debt is brought back onto the statements.
In this article, I explain ASC 842, summarize the major changes it introduces and its expected impact on corporate financial statements, and discuss how this new leasing standard allows for management subjectivity that might be used to distort earnings growth and disguise a firm's sustainable operating performance. Read on . . .
10-30-18: Weekly Stock Ratings Changes Now Available
This week's Stock Ratings Changes report is available for downloading.
10-25-18: Earnings Busters Alerts for Friday, October 26, 2018
BUY: AAR Corporation (AIR)
SELL: Extreme Networks, Inc. (EXTR)
Details are in the Earnings Busters newsletter.
10-23-18: Weekly Stock Ratings Changes Now Available
This week's Stock Ratings Changes report is available for downloading.
10-23-18: New Sabrient Dividend UIT Has Launched
The 25th Sabrient Dividend UIT Portfolio (Ticker: FQLKEX) was launched by First Trust Portfolios on October 22, 2018. This UIT seeks companies with above-average total return through a combination of capital appreciation and dividend income. The stocks are selected through an investment strategy process developed by Sabrient. The portfolio will terminate on October 22, 2020. For more information, a prospectus, or a fact sheet, please visit First Trust Portfolios.
10-23-18: Third Dividend Opportunity UIT Launched
The third portfolio in the Sabrient Dividend Opportunity UIT Series (Ticker: FTYDLX) was launched by First Trust Portfolios on October 22, 2018. This UIT seeks companies with above-average total return through a combination of capital appreciation and dividend income. The stocks are selected through an investment strategy process developed by Sabrient. The primary difference between the Dividend Opportunity portfolio and the other Sabrient Dividend portfolios, is the length of term. The Dividend Opportunity Portfolio has a 15-month term, while the Dividend portfolios have a 2-year term. This Dividend Opportunity portfolio will terminate on January 22, 2020. For more information, a prospectus, or a fact sheet, please visit FirstTrustPortfolios.com.
10-19-18: Baker's Dozen Model Portfolio for October 2018 Has Launched
The October 2018 Sabrient Baker's Dozen Model Portfolio was launched on October 19, 2018. This portfolio, like all Baker's Dozen portfolios, comprises 13 top-ranked stocks from a cross-section of market caps and industries based on our GARP approach, i.e., growth at a reasonable price. Sabrient believes each of these stocks is positioned to perform well for the next 12 months. The portfolio will terminate on October 21, 2019. To see the model portfolio stock list, please visit the Sabrient Baker's Dozen website.
10-17-18: Weekly Stock Ratings Changes Now Available
This week's Stock Ratings Changes report is available for downloading.
10-15-18: Sector Detector: China and the Fed inject new fear into a cautious market
by Scott Martindale
President, Sabrient Systems
Volatility suddenly returned with a vengeance last week -- to both stocks and bonds. In fact, on Wednesday, while the -3.1% single-day selloff in the S&P 500 didn't quite equal the -4.1% fall on February 3, the normal "flight to safety" into US Treasuries when stocks sell off didn't occur, which was quite distressing to market participants and pundits alike. But on Thursday, bonds caught a bid while equities continued their fall. Suddenly, talk has become more serious about the potential for slower global growth due to rising interest rates and escalating trade wars.
But has anything really changed from a fundamental standpoint? I would say, absolutely not. Although the risk-off rotation since June 11 continues to hold back Sabrient's cyclicals-oriented portfolios, our quantitative model still suggests that little has changed with the fundamentally strong outlook characterized by global economic growth, impressive US corporate earnings, modest inflation, low real interest rates, a stable global banking system, and historic fiscal stimulus in the US (including both tax relief and deregulation). Moreover, it appears to me that equities are severely oversold, and now is a good time to be accumulating high-quality stocks with attractive forward valuations from the cyclical sectors and small caps.
When a similar correction happened in February, the main culprits were inflation worries and hawkish rhetoric from the Federal Reserve regarding interest rates. After all, the so-called "Fed Put" has long supported the stock market. But then the Fed commentary became less hawkish and more data-driven, which was helpful given modest inflation data, but the start of the trade war rhetoric kept the market from bouncing back with as much gusto as it had been displaying.
So, what caused the correction this time? Well, to an extent, bipartisan support for heightened regulation and consumer privacy protections hit some of the mega-cap InfoTech stocks that had been leading the market. But in my view, the sudden spikes in fear (and the VIX) and in Treasury yields and the resulting rush to the exit in stocks was due to a combination of the Federal Reserve chairman's suddenly hawkish rhetoric about interest rates and China's extreme measures to offset damage from its trade war with the US. Read more at Scott Martindale's blog
10-11-18: Earnings Busters Alerts for Friday, October 12, 2018
BUY: HollyFrontier Corporation (HFC)
REPLACE: Andeavor (ANDV)
Details are in the Earnings Busters newsletter.
10-9-18: Weekly Stock Ratings Changes Now Available
This week's Stock Ratings Changes report is available for downloading.
9-27-18: Earnings Busters Alerts for Friday, September 14 2018
BUY: II-VI Incorporated (IIVI)
SELL: Alcoa Corporation (AA)
Details are in the Earnings Busters newsletter.
9-26-18: New Small Cap Growth Portfolio Launched
The 20th Sabrient Small Cap Growth UIT (FJPHTX)was launched by First Trust Portfolios on September 26, 2018. The portfolio invests in top-ranked (at the time of their selection) small-cap stocks that represent a cross-section of industries that Sabrient believes are positioned to perform well in the coming year. The stocks are GARP stocks -- stocks that represent "growth at a reasonable price" -- and they are meant to be held for the full term of the trust, which terminates December 26, 2019. For a prospectus or fact sheet, please visit First Trust Portfolios.
9-25-18: Weekly Stock Ratings Changes Now Available
This week's Stock Ratings Changes report is available for downloading.
9-20-18: Baker's Dozen Model Portfolio for September 2018 Has Launched
The September 2018 Sabrient Baker's Dozen Model Portfolio was launched on September 20, 2018. This portfolio, like all Baker's Dozen portfolios, comprises 13 top-ranked stocks from a cross-section of market caps and industries based on our GARP approach, i.e., growth at a reasonable price. Sabrient believes each of these stocks is positioned to perform well for the next 12 months. The portfolio will terminate on September 23, 2019. To see the model portfolio stock list, please visit the Sabrient Baker's Dozen website.
9-18-18: Weekly Stock Ratings Changes Now Available
This week's Stock Ratings Changes report is available for downloading.
9-13-18: Earnings Busters Alerts for Friday, September 14 2018
BUY: Domtar Corporation (UFS)
SELL: WestRock Company (WRK)
Details are in the Earnings Busters newsletter.
9-11-18: Weekly Stock Ratings Changes Now Available
This week's Stock Ratings Changes report is available for downloading.
9-10-18: Sector Detector: Stocks hit new highs despite rotation into defensive sectors
by Scott Martindale
President, Sabrient Systems
Some investors transitioned from a "fear of missing out" (aka FOMO) at the beginning of the year to a worry that things are now "as good as it gets" -- meaning that the market is in its last bullish move before the inevitable downturn kicks in. And now, escalating trade wars and a flattening yield curve have added to those fears. However, it appears to me that little has changed with the fundamentally strong outlook characterized by global economic growth, strong US corporate earnings, modest inflation, low real interest rates, a stable global banking system, and historic fiscal stimulus in the US (including both corporate tax cuts and deregulation). Moreover, the Fed may be sending signals of a slowing of rate hikes, while great strides have been made in reworking trade deals.
Many followers of Sabrient are wondering why our Baker's Dozen portfolios -- most of which had been performing quite well until mid-June -- suddenly saw performance go south even though the broad market averages have managed to achieve new highs. Their concerns are understandable. However, if you look under the hood of the S&P 500, leadership over the past three months has not come from where you would expect in a robust economy. An escalation in trade wars (moving from posturing to reality) led industrial metals prices to collapse while investors suddenly shunned cyclical sectors in favor of defensive sectors in a "risk-off" rotation, along with some of the mega-cap momentum Tech names. This was not healthy behavior reflecting the fundamentally-strong economy and reasonable equity valuations.
But consensus forward estimates from the analyst community for most of the stocks in these cyclical sectors have not dropped, and in fact, guidance has generally improved as prices have fallen, making forward valuations much more attractive. Sabrient's fundamentals-based GARP (growth at a reasonable price) model, which analyzes the forward estimates of the analyst community, still suggests solid tailwinds and an overweight in cyclical sectors. Thus, we expect that investor sentiment will eventually fall in line and we will see a "risk-on" rotation back into cyclicals as the market once again rewards stronger GARP qualities rather than just the momentum or defensive names. In other words, we think that now is the wrong time to exit our cyclicals-heavy Baker's Dozen portfolios. I talk a lot more about this in today's commentary. Read more at Scott Martindale's blog
9-5-18: Weekly Stock Ratings Changes Now Available
This week's Stock Ratings Changes report is available for downloading.
9-5-18: New Sabrient International Opportunity Portfolio Launched
The second portfolio in the Sabrient International Opportunity UIT Series (FMVBAX) was launched by First Trust on Setpember 5, 2018. The International Opportunity Portfolio invests in international stocks that represent a diversification of countries, sectors and industries, stocks that Sabrient believes are positioned to perform well in the coming 15 months. They are GARP stocks -- stocks that Sabrient believes represent growth at a reasonable price -- and they are meant to be held for the full 15-month term of the trust. The portfolio will terminate on December 5, 2019. For a fact sheet or prospectus, please visit First Trust Portfolios.
8-31-18: New Defensive Equity Portfolio Launched
A new Sabrient Defensive Equity UIT (FRLAEX), 17th in the series, was launched by First Trust Portfolios on August 31, 2018. This UIT seeks to find companies that are positioned to perform well in environments of falling stock prices but also those companies that have the potential to provide solid performance in rising markets. The stocks in the portfolio are selected through an investment strategy process developed by Sabrient. The portfolio will terminate on December 2, 2019. For a fact sheet or prospectus, please visit First Trust Portfolios.
8-30-18: Earnings Busters Alerts for Friday, August 31, 2018
BUY: Spirit AeroSystems Holdings, Inc. (SPR)
SELL: ON Semiconductor Corporation (ON)
Details are in the Earnings Busters newsletter.
8-28-18: Weekly Stock Ratings Changes Now Available
This week's Stock Ratings Changes report is available for downloading.
8-20-18: Baker's Dozen Model Portfolio for August 2018 Has Launched
The August 2018 Sabrient Baker's Dozen Model Portfolio was launched on August 20, 2018. This portfolio, like all Baker's Dozen portfolios, comprises 13 top-ranked stocks from a cross-section of market caps and industries based on our GARP approach, i.e., growth at a reasonable price. Sabrient believes each of these stocks is positioned to perform well for the next 12 months. The portfolio will terminate on August 21, 2019. To see the model portfolio stock list, please visit the Sabrient Baker's Dozen website.
8-17-18: New Rising Rate Portfolio Launched
A new Sabrient Rising Rate Portfolio (FNICLX) -- the 9th in the series -- was launched by First Trust Portfolios on August 17, 2018. Historically, certain stocks have outperformed the market in periods during which longer-term Treasury bonds have rising yields, and Sabrient believes 10-year and longer Treasury yields are likely to rise over the next several years. The Sabrient Rising Rate Portfolio is a unit investment trust that seeks to find companies that Sabrient believes are positioned to perform well in environments of rising Treasury yields. The portfolio will terminate on August 17, 2020. For a fact sheet or prospectus, please visit First Trust Portfolios.
8-16-18: Earnings Busters Alerts for Friday, August 17, 2018
BUY (RENEW): Post Holdings, Inc. (POST)
Details are in the Earnings Busters newsletter.
8-14-18: Weekly Stock Ratings Changes Now Available
This week's Stock Ratings Changes report is available for downloading.
8-6-18: Sector Detector: Strong earnings and optimism about resolving trade wars
by Scott Martindale
President, Sabrient Systems
Market conditions remain strong for equities, in my view, with stocks being held back only by the (likely transient) trade war uncertainty. The US economy appears to be hitting on all cylinders, with the new fiscal stimulus (tax reform, deregulation) providing the long-missing ingredient for a real economic "Boom cycle" to finally get some traction. For too long, the US economy had to rely solely on Federal Reserve monetary stimulus (ZIRP and QE), which served mainly to create asset inflation to support the economy (aka "Ponzi financing"), while the bulk of our working population had to endure de facto recessions in corporate profits, capital investment, and hiring. But with fiscal stimulus, corporate earnings growth is on fire, underpinned by solid revenue growth and record levels of profitability.
So far, 2Q18 earnings reporting season has come in even better than expected, with year-over-year EPS growth for S&P 500 companies approaching 24%. Even when taking out the favorable impact of lower tax rates, organic earnings growth for full-year 2018 still looks as though it will come in around the low to mid-teens.
Cautious investors are seeing the fledgling trade war as a game of brinksmanship, with positions becoming ever more entrenched. But I actually see President Trump as a free-trade advocate who is only using tariffs to force our trading partners to the bargaining table, which they have long avoided doing (and given the advantages they enjoy, why wouldn't they avoid it?). China is the biggest bogeyman in this game, and given the challenges it faces in deleveraging its enormous debt without upsetting growth targets, not to mention shoring up its bear market in stocks, its leaders are loath to address their rampant use of state ownership, subsidy, overcapacity, tariffs, forced technology transfer, and outright theft of intellectual property to give their own businesses an unfair advantage in the global marketplace. But a trade war couldn't come at a worse time for China. Read more at Scott Martindale's blog
8-2-18: Earnings Busters Alerts for Friday, August 3, 2018
BUY: Wabash National Corporation (WNC)
SELL: William Lyon Homes (WLH)
Details are in the Earnings Busters newsletter.
7-31-18: Weekly Stock Ratings Changes Now Available
This week's Stock Ratings Changes report is available for downloading.
7-27-18: Second Dividend Opportunity UIT Launched
The second portfolio in the Sabrient Dividend Opportunity UIT (Ticker: FIZYPX) was launched by First Trust Portfolios on July 25, 2018. The portfolio will terminate on October 25, 2019. This UIT seeks companies with above-average total return through a combination of capital appreciation and dividend income. The stocks are selected through an investment strategy process developed by Sabrient. The primary difference between the Dividend Opportunity portfolio and the other Sabrient Dividend portfolios, is the length of term. The Dividend Opportunity Portfolio has a 15-month term, while the Dividend portfolios have a 2-year term. For more information, a prospectus, or a fact sheet on the Dividend Opportunity Portfolio, please visit FirstTrustPortfolios.com.
7-26-18: New Sabrient Dividend UIT Has Launched
The 24th Sabrient Dividend UIT portfolio (Ticker: FUIDQX) was launched by First Trust Portfolios on July 25, 2018. The portfolio will terminate on July 24, 2020. This UIT seeks companies with above-average total return through a combination of capital appreciation and dividend income. The stocks are selected through an investment strategy process developed by Sabrient. For more information, a prospectus, or a fact sheet, please visit First Trust Portfolios.
7-24-18: Weekly Stock Ratings Changes Now Available
This week's Stock Ratings Changes report is available for downloading.
7-20-18: Baker's Dozen Model Portfolio for July 2018 Has Launched
The July 2018 Sabrient Baker's Dozen Model Portfolio was launched on July 20, 2018. This portfolio, like all Baker's Dozen portfolios, comprises 13 top-ranked stocks from a cross-section of market caps and industries based on our GARP approach, i.e., growth at a reasonable price. Sabrient believes each of these stocks is positioned to perform well for the next 12 months. The portfolio will terminate on July 22, 2019. To see the model portfolio stock list, please visit the Sabrient Baker's Dozen website.
7-19-18: Earnings Busters Alerts for Friday, July 20, 2018
BUY: MRC Global Inc (MRC)
SELL: Coherent, Inc. (COHR)
Details are in the Earnings Busters newsletter.
7-17-18: Weekly Stock Ratings Changes Now Available
This week's Stock Ratings Changes report is available for downloading.
7-10-18: Sector Detector: Q2 earnings season brings anticipation of a bullish breakout
by Scott Martindale
President, Sabrient Systems
From the standpoint of the performance of the broad market indexes, US stocks held up okay over the past four weeks, including a good portion of a volatile June. However, all was not well for cyclicals, emerging markets (including China), and valuation-driven active selection in general, including Sabrient's GARP (growth at reasonable price) portfolios. Top-scoring cyclical sectors in our models like Financial, Industrial, and Materials took a hit, while defensive sectors (and dividend-paying "bond proxies") Utilities, Real Estate, Consumer Staples, and Telecom showed relative strength. According to BofA's Savita Subramanian, "June was a setback for what might have been a record year for active managers." The culprit? Macro worries in a dreaded news-driven trading environment, given escalating trade tensions, increasing protectionism, diverging monetary policy among central banks, and a strong dollar. But let's not throw in the towel on active selection just yet. At the end of the day, stock prices are driven by interest rates and earnings, and both remain favorable for higher equity prices and fundamentals-based stock-picking.
Some investors transitioned from a "fear of missing out" at the beginning of the year to a worry that things are now "as good as it gets" . . . and that it might be all downhill from here. Many bearish commentators expound on how we are in the latter stages of the economic cycle while the bull market in stocks has become "long in the tooth." But in spite of it all, little has changed with the fundamentally strong outlook underlying our bottom-up quant model, characterized by synchronized global economic growth (albeit a little lower than previously expected), strong US corporate earnings, modest inflation, low global real interest rates, a stable global banking system, and of course historic fiscal stimulus in the US (tax cuts and deregulation), with the US displaying relative favorability for investments. Sabrient's fundamentals-based GARP model still suggests solid tailwinds for cyclicals, and indeed the start of this week showed some strong comebacks in several of our top picks -- not surprising, given their lower valuations, e.g., forward P/E and PEG (P/E to EPS growth ratio). Read more at Scott Martindale's blog
7-10-18: Weekly Stock Ratings Changes Now Available
This week's Stock Ratings Changes report is available for downloading.
7-5-18: Earnings Busters Alerts for Friday, July 6, 2018
BUY: ConocoPhillips (COP)
SELL: STMicroelectronics N.V. (STM)
Details are in the Earnings Busters newsletter.
7-3-18: Rising interest rates and equity valuation from an earnings quality perspective
by Rachel Bradley
Equity Analyst, Gradient Analytics LLC (a Sabrient Systems company)
In mid-June, the Federal Reserve raised interest rates by 25 bps and signaled it was on track to raise rates twice more in 2018. With interest rates near zero for almost ten years, we believe that this gradual normalization to higher rates signals a long-term positive for the sustainable growth of the economy. The Fed is signaling its satisfaction with current inflation and unemployment trends and its confidence in the health of the broad economy. Fed chair Jerome Powell has stated that the economy has become sufficiently healthy such that the Fed can be more hands-off in stimulating economic activity.
During a normal expansion phase characterized by robust economic growth and rising equity prices, the Fed typically will push up interest rates (causing bond prices to fall). But in its most recent comments, the FOMC signaled it would likely allow inflation to hover above its official 2.0% target. Such a lenient (or dovish) stance on inflation is generally more favorable for continued growth as the Fed is in no hurry to increase the speed of its rate hikes. Even after the latest rate hike, the target nominal fed funds rate is 1.75%-2.00%, which is still a negative real rate once inflation is subtracted. The last time the fed funds rate was over 2.00% was in 2008.
One of the basic tenants of finance is the inverse relationship between interest rates and bond values. However, as the Federal Reserve continues on its path to normalize rates, we believe it's worth exploring how interest rate changes can also affect equity valuations. The questions that seem to be on the collective investment community's mind is, "What does this mean for me and my holdings? Are valuations peaking? Should I sell?" While it normally takes a year or more for changes in interest rates to be felt across the entire economy, the market often has a more immediate response. Read more at the Sabrient Blog
7-3-18: Weekly Stock Ratings Changes Available
This week's Stock Ratings Changes spreadsheet is available for downloading.
6-29-18: New Small Cap Growth Portfolio Launched
The 19th Sabrient Small Cap Growth UIT (FMETJX) was launched by First Trust Portfolios on June 19 2018. The portfolio invests in top-ranked (at the time of their selection) small-cap stocks that represent a cross-section of industries that Sabrient believes are positioned to perform well in the coming year. The stocks are GARP stocks -- stocks that represent "growth at a reasonable price" -- and they are meant to be held for the full term of the trust, which terminates September 30, 2019. For a prospectus or fact sheet, please visit First Trust Portfolios.
6-27-18: New Forward Looking Value UIT Launched
A new Sabrient Forward Looking Value Portfolio (FJVLQX), 6th in the series, was launched by First Trust Portfolios on June 27, 2018. This 35-stock portfolio seeks companies that are positioned to perform well in the near future by "looking forward" at anticipated earnings over the next few years. The stocks in the portfolio are selected by applying a comprehensive investment strategy developed by Sabrient. The portfolio will terminate on October 3, 2019. For a prospectus or fact sheet, please visit First Trust Portfolios.
6-26-18: Weekly Stock Ratings Changes Available
This week's Stock Ratings Changes spreadsheet is available for downloading.
6-21-18: Earnings Busters Alerts for Friday, June 22, 2018
BUY: ArcBest Corporation (ARCB)
SELL: XL Group Ltd (XL)
Details are in the Earnings Busters newsletter.
6-20-18: Baker's Dozen Portfolio for June 2018 Has Launched
The June 2018 Sabrient Baker's Dozen UIT Portfolio (FRWLTX)was launched by First Trust Portfolios on June 20, 2018. This portfolio, like all Baker's Dozen portfolios, comprises 13 top-ranked stocks from a cross-section of market caps and industries based on our GARP approach, i.e., growth at a reasonable price. Sabrient believes each of these stocks is positioned to perform well for the next 13 months. The portfolio will terminate on July 22, 2019. For more information and a fact sheet please visit First Trust Portfolios.
6-19-18: Weekly Stock Ratings Changes Available
This week's Stock Ratings Changes spreadsheet is available for downloading.
6-7-18: Earnings Busters Alerts for Friday, June 8, 2018
BUY: The Travelers Companies, Inc. (TRV)
SELL: Tech Data Corporation (TECD)
Details are in the Earnings Busters newsletter.
6-7-18: First Sabrient International Opportunity Portfolio Launched
A new Sabrient UIT series – the Sabrient International Opportunity Portfolio – was launched by First Trust on June 7, 2018. The International Opportunity Portfolio invests in international stocks that represent a diversification of countries, sectors and industries, stocks that Sabrient believes are positioned to perform well in the coming 15 months. They are GARP stocks – stocks that Sabrient believes represent growth at a reasonable price – and they are meant to be held for the full 15-month term of the trust. The portfolio will terminate on September 9, 2019. For a fact sheet or prospectus, please visit FirstTrustPortfolios.com.
6-5-18: Weekly Stock Ratings Changes Available
This week's Stock Ratings Changes spreadsheet is available for downloading.
6-5-18: Sector Detector: Fundamental strength overcomes new macro worries as Tech and small caps lead
by Scott Martindale
President, Sabrient Systems
The month of May turned out to be pretty decent for stocks overall, with the S&P 500 large caps up about +2%, with growth greatly outperforming value, and June has got off to a good start, as well. But the smaller caps were the bigger stars, as I have been predicting for several months, with the S&P 600 small caps up +6% for the month. Even after a volatile April, and even though the headlines on trade wars, oil prices, Iran, North Korea, Venezuela, Italy, et al were confusing if not frightful, and even though technical signals suggested overbought conditions and a likely pullback, investors have been reluctant to sell their equities and the late-month pullback was fleeting.
Nevertheless, many commentators are offering up lots of reasons why further upside is limited and stocks likely will turn tail into a downtrend, including political contagion in the EU, the US dollar strengthening too much such that overseas corporate profits take a hit, and yields rising too quickly such that they 1) burden a heavily-leveraged economy and 2) suppress stock prices by spiking the risk-free rate used in a discounted cash flow analysis. But I think the main thing weighing on investors' minds right now is fear that things are "as good as it gets" when it comes to synchronized global growth, monetary and fiscal stimulus, and year-over-year growth in corporate earnings. In other words, now that the hope and optimism for strong growth actually has materialized into reality, there is nothing more to look forward to, so to speak. The year-over-year EPS comparisons won't be so eye-popping. Earnings growth inevitably will slow, higher interest rates will suppress valuations, and P/E compression will set in.
However, recall that the so-called "taper tantrum" a few years ago led to similar investor behavior, but then eventually cooler heads prevailed as investors realized that the fundamental picture was strong and in fact extraordinary monetary accommodation was no longer necessary (or even desirable). Similarly, I think there is still plenty of fuel in the tank from tax reform, deregulation, and new corporate and government spending plans, offering up the potential to drive strong growth for at least the next few years (e.g., through revived capex, onshoring of overseas capital and operations, and M&A). Read more at Scott Martindale's blog
5-30-18: Weekly Stock Ratings Changes Available
This week's Stock Ratings Changes spreadsheet is available for downloading.
5-24-18: Earnings Busters Alerts for Friday, May 25, 2018
BUY: Voya Financial, Inc. (VOYA)
SELL: KB Home (KBH)
Details are in the Earnings Busters newsletter.
5-22-18: Weekly Stock Ratings Changes Available
This week's Stock Ratings Changes spreadsheet is available for downloading.
5-21-18: New Rising Rate Portfolio Launched
A new Sabrient Rising Rate Portfolio (FRWNZX) -- the 8th in the series -- was launched by First Trust Portfolios on May 21, 2018. Historically, certain stocks have outperformed the market in periods during which longer-term Treasury bonds have rising yields, and Sabrient believes 10-year and longer Treasury yields are likely to rise over the next several years. The Sabrient Rising Rate Portfolio is a unit investment trust that seeks to find companies that Sabrient believes are positioned to perform well in environments of rising Treasury yields. The portfolio will terminate on May 21, 2020. For a fact sheet or prospectus, please visit First Trust Portfolios.
5-18-18: Baker's Dozen Portfolio for May 2018 Launched
The May 2018 Sabrient Baker's Dozen UIT Portfolio (FGUDMX)was launched by First Trust Portfolios on May 18, 2018. This portfolio, like all Baker's Dozen portfolios, comprises 13 top-ranked stocks from a cross-section of market caps and industries based on our GARP approach, i.e., growth at a reasonable price. Sabrient believes each of these stocks is positioned to perform well for the next 13 months. The portfolio will terminate on June 20, 2019. For more information and a fact sheet please visit First Trust Portfolios.
5-15-18: Weekly Stock Ratings Changes Available
This week's Stock Ratings Changes spreadsheet is available for downloading.
5-10-18: Earnings Busters Alerts for Friday, May 11, 2018
BUY (RENEW): Winnebago Industries, Inc. (WGO)
Details are in the Earnings Busters newsletter.
5-8-18: Weekly Stock Ratings Changes Available
This week's Stock Ratings Changes spreadsheet is available for downloading.
5-3-18: Sector Detector: Rising 10-year yield puts investors on pause despite robust earnings
by Scott Martindale
President, Sabrient Systems
Rather than living up to its history as one of the best months for stocks, April proved to be a disappointment this year despite robust year-over-year Q1 corporate earnings growth of roughly +20%. But there were some interesting developments nonetheless. In spite of investors' apparent desire to start rotating away from the mega-cap Tech leaders and the Momentum factor into the neglected market opportunities, it is clear that some of the FAANG juggernauts still matter . . . and wield plenty of clout. Witness the market's reaction to Facebook (FB), Amazon.com (AMZN), and Apple (AAPL) earnings announcements as each dazzled beyond expectation. Nevertheless, I think the fledgling trend away from a narrow list of market leaders and into a broader group of high-growth market segments with more compelling forward valuations will soon resume. Likewise, while I still think full-year 2018 ultimately will see a double-digit total return on the market-cap-weighted S&P 500, with the index closing the year north of 3,000 on the back of historic earnings growth (even with some P/E compression), I also think a well-selected portfolio of attractive "growth at a reasonable price" (GARP) stocks has the potential to perform even better.
This is what we at Sabrient seek to do with our proprietary GARP model, including our monthly all-cap Baker's Dozen portfolios, as well as portfolios for small cap growth, dividend income, defensive equity, and stocks that tend to thrive in a rising interest-rate environment. Another way to find clues about near-term opportunities in the market is to track the buying behavior of corporate insiders and the sell-side analysts who follow the companies closely, and for that we employ our proprietary "insider sentiment" model. Also, I still like small caps to outperform this year, and indeed smalls have outperformed large caps over the first four months, with Energy, Healthcare, and Financial sectors showing the greatest relative outperformance among small caps. Read more at Scott Martindale's blog
5-1-18: Weekly Stock Ratings Changes Available
This week's Stock Ratings Changes spreadsheet is available for downloading.
4-30-18: First Dividend Opportunity UIT Launched
The 1st portfolio in the Sabrient Dividend Opportunity UIT (Ticker: FRZWLX) was launched by First Trust Portfolios on April 27, 2018. The portfolio will terminate on July 29, 2019. This UIT seeks companies with above-average total return through a combination of capital appreciation and dividend income. The stocks are selected through an investment strategy process developed by Sabrient. The primary difference between the Dividend Opportunity portfolio and the Dividend portfolios, is the term. The Dividend Opportunity Portfolio has a 15-month term; the Dividend portfolios have a 2-year term. For more information, a prospectus, or a fact sheet on the Dividend Opportunity Portfolio, please visit First Trust Portfolios.
4-30-18: 23rd Sabrient Dividend UIT Launched
The 23nd Sabrient Dividend UIT portfolio (Ticker: FQBCAX) was launched by First Trust Portfolios on April 27, 2018. The portfolio will terminate on April 27, 2020. This UIT seeks companies with above-average total return through a combination of capital appreciation and dividend income. The stocks are selected through an investment strategy process developed by Sabrient. For more information, a prospectus, or a fact sheet, please visit First Trust Portfolios.
4-26-18: Earnings Busters Alerts for Friday, April 26, 2018
BUY (RENEW): Olin Corporation (OLN)
Details are in the Earnings Busters newsletter.
4-24-18: Weekly Stock Ratings Changes Available
This week's Stock Ratings Changes spreadsheet is available for downloading.
4-20-18: April 2018 Baker's Dozen Portfolio Launched
Sabrient Baker's Dozen UIT Portfolio (FAMNJX)was launched by First Trust Portfolios on April 20, 2018. This portfolio, like all Baker's Dozen portfolios, comprises 13 top-ranked stocks from a cross-section of market caps and industries based on our GARP approach, i.e., growth at a reasonable price. Sabrient believes each of these stocks is positioned to perform well for the next 13 months. The portfolio will terminate on May 20, 2019. For more information and a fact sheet please visit First Trust Portfolios.
4-17-18: Weekly Stock Ratings Changes Available
This week's Stock Ratings Changes spreadsheet is available for downloading.
4-12-18: Earnings Busters Alerts for Friday, April 13, 2018
BUY (RENEW): Steel Dynamics Inc. (STLD)
Details are in the Earnings Busters newsletter.
4-10-18: Weekly Stock Ratings Changes Available
This week's Stock Ratings Changes spreadsheet is available for downloading.
4-6-18: New Small Cap Growth Portfolio Launched
The 18th Sabrient Small Cap Growth UIT (FCRDLX) was launched by First Trust Portfolios on April 4, 2018. The portfolio invests in top-ranked (at the time of their selection) small-cap stocks that represent a cross-section of industries that Sabrient believes are positioned to perform well in the coming year. The stocks are GARP stocks --stocks that represent "growth at a reasonable price" -- and they are meant to be held for the full term of the trust, which terminates July 5, 2019. For a prospectus or fact sheet, please visit First Trust Portfolios.
4-4-18: Sector Detector: Higher volatility was inevitable, but bulls still control their own destiny
by Scott Martindale
President, Sabrient Systems
After an inspiring final day of Q1 led by the usual "window dressing" of mutual fund managers, news-driven volatility returned with a vengeance on Monday before recovering some ground on Tuesday. Although I rarely trust market moves on the last day of a quarter or the first day of a new quarter, there is little doubt that market volatility is back this year, as I expected it would be. Last year, rather than enduring scary selloffs to correct imbalances, the market simply rotated into neglected market segments from time to time. This conviction to stay invested was largely due to consistent improvement in global economic fundamentals coupled with rising optimism about new fiscal stimulus -- leading to a fear of missing out. But given the passage of the tax bill and plenty of progress with deregulation last year, I expected investors this year to display more of a Missourian "show me" attitude as to what Corporate America actually would do with their newfound cash windfalls and looser regulatory noose. Would this truly spell the end of the capex recession, ushering in a new wave of onshoring, PP&E upgrades, hiring, buybacks, and M&A? For their part, sell-side analysts have been raising corporate earnings estimates at a historically fast pace.
But the proof is in the pudding, as they say, and the price run-up and elevated valuation multiples (that arose in anticipation of tax cuts and new corporate investment) were due for compression, as speculation gives way to reality, along with some "price rationalization" and deleveraging of speculative portfolios. And on top of those dynamics, the market is suddenly fretting about tariffs, trade wars, inflationary pressures, and the Fed. Nevertheless, there seems to be something for all investors to hold on to, as both fundamentalists and technicians alike should be excited by the lower valuations and successful tests of support in a climate of robust growth and corporate earnings. But I'm not talking about a return to market conditions of old, characterized by falling interest rates, slow growth, and low volatility, which rewarded passive investing in cap-weighted indexes with elevated P/E's. Instead, we likely are entering a new era, characterized by rising interest rates, faster growth, and higher volatility, which rewards sound stock-picking. Read more at Scott Martindale's blog
4-3-18: Weekly Stock Ratings Changes Available
This week's Stock Ratings Changes spreadsheet is available for downloading.
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