Good Things Come In Small Businesses

SPECIAL NOTE: Investors have been focused on financial, industrial and healthcare stocks lately, but Internet stocks offer growth...and plenty to talk about. So in the next Zacks Ultimate Live Webinar, Eric Dutram will examine why the Internet of things is a must-watch industry for 2017. And Kevin Cook will delve into “Death by Amazon (NASDAQ:AMZN),” a look at how the web and mobile will continue to drive and dictate consumer behavior and decimate old-line big box business. The duo will also be discussing their top recommendations and some Zacks Rank pointers. And as always, they’ll be taking questions from ZU subscribers like you. Send your questions to mailbag@zacks.com, but remember that you must participate IN THE LIVE EVENT to get answers from Kevin and Eric. So join these editors right here this Thursday, January 12 at 12:00 noon ET.

Earnings season has yet to really get rolling and there are no big economic reports scheduled for the next few days, so the market continued to amble along on Tuesday. The NASDAQ remained the big star as it completed its sixth straight day of gains with an advance of 0.36% to another new record of 5551.8. The other two major indices spent most of the day in the green, but couldn’t hold on. The S&P went nowhere and finished exactly where it began the day at 2268.9. The Dow was off 0.16% to 19,855.5.

But several of the editors were focused on small businesses today, thanks to the National Federation of Independent Business. The NFIB’s Index of Small Business Optimism jumped 7.4 points to 105.8 in December, which easily beat the expectation of 99.6 for its best reading since 2004. Since small businesses account for most of the employment in this country, this bit of optimism is a good sign for the economy and the market.

It was a busy day in the portfolios, especially for the Large-Cap Trader. The portfolio made its first sells on Tuesday and one of them was a double-digit winner. It also bought a new position and doubled the allocation of another. Zacks Counterstrike and Stocks Under $10 also bought, while Short List had three swaps in its weekly alignment. Read more about these moves below, along with some analysis on the NFIB data.


First Sell, First Double-Digit Winner

→ For the first time in its short history, the Large-Cap Trader is taking some profits! With sentiment high in the runup to Inauguration Day, John decided to get out of his entire position in Navy ships builder Huntington Ingalls (HII). You can consider this “selling the news on the good old Trump trade”. The sell brings an impressive return of 19% in a little over two months. While he was in a selling move, the editor also got out of Teradyne (TER) for a 3.2% return as its momentum run looks to be getting a little long in the tooth. Learn about the two new stocks replacing these names below:


Today's Portfolio Highlights:

• The airlines industry is pretty solid right now with a Zacks Industry Rank of 39 out of 265, and John found a cheap stock that should ride up any broad European share momentum. International Consolidated Airlines (ICAGY), which acts as the holding company for British Airways and Iberia, is a Zacks Rank #1 (Strong Buy) with Zacks Style Scores of “A” for Value and Growth. The editor sees an opening for a nice valuation-driven run in this stock's chart, so he added it to Large-Cap Trader with an 8.5% allocation. Meanwhile, John also doubled the portfolio’s allocation in Commscope (COMM) to 8%, as its lower PEG ratio continues to keep him interested. Learn more about these moves in the complete commentary.

• Shares of Gibraltar Industries (ROCK) jumped to $48 when it last reported earnings in October. Now, this manufacturer of metals and other engineered materials for building products is preparing for its next release in mid-February, and Jeremy’s analysis is telling him that it will again rally back to recent highs into the release. The editor believes ROCK presents an excellent risk/reward for the short-term trader, so he added it to Zacks Counterstrike on Tuesday with an 8% allocation. The editor also sees a “beautiful channel setting up” for larger time frames. Read the complete commentary for more specifics on this new addition.

• Emcore Corporation (EMKR) has a broad portfolio of semiconductor-based profits for the broadband, fiber optic and solar power markets, which means its part of a space at the high end of the Zacks Industry Rank (18th out of 265). This Zacks Rank #1 (Strong Buy) stock reported a solid quarter last month, which included a positive earnings surprise of 100% and a raised revenue guidance. Shares surged in the aftermath of the report. Brian likes what he sees with EMKR and added it to the Stocks Under $10 portfolio on Tuesday. Get a lot more info on this new addition in the full write-up.

• The Zacks Short List short-covered three names in this week’s adjustment: CAG, ILMN and CF. The new additions that replaced these names are ConocoPhillips (NYSE:COP), Hilton Worldwide Holdings (HLT) and Under Armour (UAA). Learn more about this emotion-free portfolio that takes advantage of falling and volatile markets by reading the Short List Trader Guide.

• "There are plenty of strong economic indicators these days, but perhaps none more impressive than the soaring NFIB Small Business Optimism Index. On Tuesday morning this reading went from 98.4 all the way up to 105.8 for the best reading since December 2004…yes, the best showing in twelve years.

"Why is this so bullish?

"Small business is still the main driver of jobs and economic growth in the US. Thus, if these business owners are feeling this optimistic you can expect a lot more spending, investment and job growth ahead. The sum total of these moves should equate to higher economic growth and earnings growth and share price gains," said Steve in Reitmeister Trading Alert.

• "In a continued surge, today’s report on small business optimism was once again through the roof. The actual reading came in at 105.8, easily crushing the consensus reading of 99.6 and past the high point of the consensus range too.

"In particular, respondents appeared optimistic regarding sales expectations and plans to increase capital spending. I am confident this is the year that we finally get some wage growth and that the economy starts to return to normal on that front. It looks like smooth sailing so long as the dollar doesn’t get too strong, and as long as Washington doesn’t screw things up," said Eric in Surprise Trader.

All the Best,
Jim Giaquinto