Stock Leadership Changed in February

Zacks

Welcome to the latest version of Zacks Market Strategy. These Zacks reports come out each month just after the payroll jobs data. To see the Zacks Market Strategy report in its entirety, please click here.

Below are excerpts.

Is It Time to Buy in Early February?   

Based on recent ADP jobs and weekly February unemployment claims data and ISM and PMI numbers, yes. Based on Federal non-farm payroll numbers from Dec and Jan, there is some worry.  

After a two-year budget deal passed through DC, we got further onboard for a rise in U.S. stocks under an optimistic forward 2014 earnings outlook…if DC games stay sidelined.  

Markets are fairly priced to full year 2014.  Earnings targets need to be met.

Our Tactical Sense of Stock Market Timing Tied to Valuations

This market’s valuations have been ignored.  

Bearish sages will keep pointing at them from time to time.  Still other bearish sages will point at a rising 10-year Treasury rate or any volatility seen there.  

Bullish sages think there is more space for the cycle to run.  Any failure in DC needs to be seen as a very, very real roadblock. The 10-year is actually declining at the moment, supporting stocks.  

Zacks February Sector/Industry/Company Telescope

February saw sector leadership shift.  New leaders are Industrials, Finance, Health Care, and Info Tech.  The Consumer Discretionary sector is not leading the way for the first time in several months.

(1) Industrials got a big Upgrade to Very Attractive.  Aerospace & Defense industry is the Most Attractive, followed by Construction-Building Services, Airlines, Business Services, and Machinery-Electrical.  It looks like air travel, and business and construction services are prospering.   The only loser is Machinery.

Company to look at: Northrup Grumman (NOC)

(2) Financials is a sector Upgraded to a Very Attractive sector in February.  Look for M&A activity to keep Investment Banking & Brokering moving.  Insurance remains Attractive.  Finance and Real Estate are at Market Weight.  The loser is Banks-Major with fines and more regulations.

Company to look at: CNO Financial (CNO)

(3) Health Care is a solid Market Performer.  Drugs are Attractive here.

Company to look at: Almost Family, Inc. (AFAM)

(4) Info Tech Stayed a Market Weight.  There is strength in Telco equipment and Computer Software-Services to take a look into.  Semis are losers, as are Misc-Tech and Electronics.
 
(5) Utilities get an upgrade to Market Weight in February.  It has been a cold winter.  The sale of natural gas heating led to some upgrades by analysts.

(6) Materials get a downgrade to Market Weight.  Steel, Container & Glass, Chemical, and Building Products – Construction Materials hold up.

(7) Consumer Discretionary is downgraded to an Underperform sector.  The only industries that held up were Leisure Services, Publishing, and Home Furnishing - Appliances.  This is a major change.  It remains to be seen if this trend stays put after the completion of earnings season.  This could be related to stale Zacks Rankings.

(8) Energy is more or less static at a slight Underperform.  The Energy-Alternate Sources, in particular Solar, continues to be the bright spot.

(9) Consumer Staples now a deep Underperform Sector.  The only major Upgrade and exception was a Very Attractive rating on Agri-business.  Five of seven industries in Very Unattractive.  That’s an all-time low.

(10) Telco Services gets a solid Very Unattractive rating.

To see the Zacks Market Strategy report in its entirety, please click here.

Read the Full Research Report on NOC
Read the Full Research Report on CNO
Read the Full Research Report on AFAM


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