Investment Commentary & Outlook - May 8, 2018

Our Growth and Dividend Growth portfolios have rebounded impressively in recent weeks and have gotten off to a great start this announcement season. In the upcoming weeks we will be selling good stocks with decelerating earnings momentum and buying stocks with stronger forecasted earnings growth as well as “fat” net operating margins. These high-margin companies should fare well in the bumpy summer months when the stock market becomes more narrow and selective.

In the near-term, we expect to continue prospering during the first-quarter announcement season, since both our Growth and Dividend Growth portfolios are characterized by strong annual sales and earnings growth, as well as strong earnings surprises:

In the past few months, the analyst community has revised their consensus earnings estimate significantly higher for many of our Growth and Dividend Growth stocks. Since positive analyst earnings revisions tend to precede future earnings surprises, we expect wave after wave of positive earnings surprises in the upcoming weeks. Furthermore, thanks to corporate tax reform, we are expecting strong earnings announcements in the upcoming weeks.

Many of our Growth and Dividend Growth stocks continue to boost their dividends and the average dividend has been boosted in the past year. Furthermore, the stock buy-back activity remains significant, which should also help boost many company’s underlying earnings per share. Interestingly, many of our Growth and Dividend Growth stocks trade at relatively low price-to-earnings ratios, so these stocks have a lot of appreciation potential.

Speaking of valuations, the financial media has repeatedly warned investors in recent months that the stock market was overvalued. In my opinion this is totally bogus. Somehow the financial media . . . read more

Download the Market Outlook Letter — May 8, 2018