Tag Archives: events

4 Growth ETFs & Stocks To Bloom In Spring

As the spring season kicked off, economic activity across all the sectors are likely to step up, injecting fresh optimism in both business and consumer confidence. The housing and transport sectors in particular gain momentum with demand building up over the frigid winter for new homes and transportation, which is a barometer of broad economic health. This spring, solid job gains, slowly rising wages and higher spending power buoyed by cheap fuel will add to the strength. The combination of these factors will give a boost to the stock market, which saw a scary start to the year but made an impressive comeback over the past one month. While value stocks have been gathering maximum attention this year, growth stocks have more upside potential in the coming month, buoyed by spring fever. This is especially true as growth investing is basically a momentum play and a great strategy in a trending market (a market characterized by a prolonged uptrend). Growth stocks refer to high-quality stocks that are likely to witness revenue and earnings increase at a faster rate than the industry average. These stocks harness their momentum in earnings to create a positive bias in the market, resulting in rocketing share prices. As such, growth stocks tend to outperform during an uptrend. Given this, investors should recycle their portfolio into the growth space to obtain a nice momentum play. For them, we have presented four ETFs and stocks that are ready to bloom this spring. ETF Picks Using our database, we have selected growth ETFs that provide exposure to the broad stock market instead of a particular sector and have a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). This is because these ranks suggest strengthening fundamentals and superior weighting methodologies that could allow them to lead higher than their cousins in a booming market. Further, these funds have outperformed the broad market fund (NYSEARCA: SPY ) by a wide margin over the past one year. Notably, SPY delivered returns of 0.82% in the same time period. iShares Russell Top 200 Growth ETF (NYSEARCA: IWY ) This fund offers exposure to the large-cap segment by tracking the Russell Top 200 Growth Index. Zacks ETF Rank: #3 Expense Ratio: 0.20% AUM: $622 million No. of Stocks: 137 One-Year Return: 3.76% PowerShares QQQ (NASDAQ: QQQ ) This fund also offers exposure to the large-cap equities and follows the Nasdaq 100 index. Zacks ETF Rank: #3 Expense Ratio: 0.20% AUM: $37.8 billion No. of Stocks: 106 One-Year Return: 2.80% Vanguard S&P 500 Growth ETF (NYSEARCA: VOOG ) This fund tracks the S&P 500 Growth Index. Zacks ETF Rank: #3 Expense Ratio: 0.15% AUM: $795.9 million No. of Stocks: 311 One-Year Return: 2.06% Vanguard Russell 1000 Growth ETF (NASDAQ: VONG ) This ETF tracks the Russell 1000 Growth Index. Zacks ETF Rank: #3 Expense Ratio: 0.12% AUM: $515.8 million No. of Stocks: 641 One-Year Return: 1.10% Stock Picks For stocks, we have chosen four top picks using the Zacks Screener that fits our five criteria: a Zacks Rank #1, a Growth Style Score of ‘A’, Zacks Industry Rank within the top 15%, market cap of over 1 billion, and positive relative price change (compared to the S&P 500). Here are our chosen stocks. Tyson Foods Inc. (NYSE: TSN ) This Arkansas-based company is one of the world’s largest producers of chicken, beef, pork and prepared foods, offering a wide range of protein-based and prepared foods products. Zacks Industry Rank: Top 2% Market Cap: $24.29 billion Relative Price Change: 25.92 John Bean Technologies Corporation (NYSE: JBT ) This Illinois-based company is a leading global technology solutions provider to high-value segments of the food processing and air transportation industries. Zacks Industry Rank: Top 6% Market Cap: $1.60 billion Relative Price Change: 9.98 Smith & Wesson Holding Corporation (NASDAQ: SWHC ) This Massachusetts-based company is one of the world’s leading producers of quality handguns, law enforcement products and firearm safety and security products. Zacks Industry Rank: Top 10% Market Cap: $1.46 billion Relative Price Change: 21.13 Insperity Inc. (NYSE: NSP ) This Texas-based company provides an array of human resources and business solutions to enhance the performance of small and medium-sized businesses in the United States. Zacks Industry Rank: Top 10% Market Cap: $1.09 billion Relative Price Change: 6.63 Original Post

Closed-End Fund Craziness

By Alan Gula, CFA Last week, Barack Obama became the first U.S. president to visit Cuba in nearly nine decades. As you may recall, President Obama announced that the United States would re-establish diplomatic relations with Cuba in December of 2014. Of course, investors immediately began searching for ways to profit from the re-opening of trade and travel with Cuba. Some investors thought they had uncovered a gem called The Herzfeld Caribbean Basin Fund (NASDAQ: CUBA ), a closed-end fund (CEF). After all, the ticker seemingly told you all you had to know. From December 16, 2014 to December 23, 2014, CUBA rose 107%. The fund went from a discount of over 10% of its underlying net asset value (NAV) to a massive 70% premium . Except there was one big problem: CUBA had little direct exposure to Cuba. Close, but no cigar. By mid-January 2016, the fund had lost over 60% of its value and was once again trading at a discount to its NAV. CEFs, like CUBA, have a set number of shares outstanding. Therefore, supply and demand forces determine whether the shares trade at a premium or discount to NAV. CEFs tend to be relatively small and illiquid, so their holders are predominantly individual investors. As a result, CEF share prices are heavily influenced by the herding of retail investors – perfectly illustrated by the CUBA episode. However, CUBA is an especially small CEF. Such pricing anomalies would never occur with the larger funds run by prominent financial institutions, right? High-Yield CEFs In June of 2014, near the height of the “reach for yield” mania, I recommended selling two high-yielding PIMCO closed-end funds . At the time, the PIMCO High Income Fund (NYSE: PHK ) and the PIMCO Global StocksPLUS & Income Fund (NYSE: PGP ) were trading at absurd 57% and 66% premiums to their NAVs, respectively. Over the next 15 months, PHK and PGP both lost roughly 40% of their values (distributions included but not reinvested). The premium for PHK evaporated and the premium for PGP hit a more reasonable but still elevated 18%. But wait… The herd is back for more! The premiums have since re-inflated for both funds. In fact, the premium on PGP recently reached an unprecedented 103%. It seems as though many folks are using the snapback rally in the credit market as an excuse to bid up several closed-end funds with impunity. The following table is a list of several CEFs trading at high premiums: The premiums on Eagle Point Credit Company Inc. (NYSE: ECC ) and the DoubleLine Opportunistic Credit Fund (NYSE: DBL ) have recently surged to their highest levels ever. The Babson Capital Corporate Investors (NYSE: MCI ) is rated five stars by Morningstar and has a great track record, but no fund is worth a 20%-plus premium. The PIMCO Municipal Income Fund (NYSE: PMF ), PIMCO California Municipal Income Fund II (NYSE: PCK ), PIMCO New York Municipal Income Fund II (NYSE: PNI ), and PIMCO California Municipal Income Fund III (NYSE: PZC ) are all trading at very high premiums. No matter how bullish you are on muni-bonds, there’s no reason to pay up this much for exposure. The financial markets may not make sense all of the time, but, as you can tell, craziness is the norm in CEF land. When a CEF you own trades at a small premium to its NAV, you should at least consider selling it. When that premium exceeds 15%… hit the bid and get out as if you’re fleeing a communist dictatorship.

Words Of Encouragement From Buffett

Let’s start with one of the best ways to think about small-caps, from none other than Warren Buffett. Here are Buffett’s thoughts on investing in small-caps: “If I was running $1 million today, or $10 million for that matter, I’d be fully invested. Anyone who says that size does not hurt investment performance is selling. The highest rates of return I’ve ever achieved were in the 1950s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It’s a huge structural advantage not to have a lot of money. I think I could make you 50 percent a year on $1 million. No, I know I could. I guarantee that. The universe I can’t play in has become more attractive than the universe I can play in. I have to look for elephants. It may be that the elephants are not as attractive as the mosquitoes. But that is the universe I must live in.” Now, the Russell 2000 index is off 5% year to date and now down 12% in just the last year. Meanwhile, the S&P 500 is only down 1% over both periods. But have no fear, small-cap stocks are fine. Over the long term, they’ll still treat you right, and if you pick the right ones, they’ll do just as well in the short term. This starts with focusing on value. From 1926 to the mid-2000s, small-cap value stocks grossly outperformed large-cap growth. Large-cap growth stocks posted an average return of 9.3% from 1926 to 2004. The small-cap value stocks meanwhile are up 15.9% over the same period. Ibbotson has put together some work that shows small-cap stocks have outperformed large-cap stocks almost 80% of the time over a 15-year period and 95% of the time over a 20-year period. Source: KeyStone Financial We’ve been through the reasons that small-caps outperform before – dubbed the Six Small-Cap Laws – which includes size and growth rates. It’s inherently easier for a company to double earnings from $100 million to $200 million, rather than from $1 billion to $2 billion. The best companies start out as small-caps. This includes the likes of Wal-Mart (NYSE: WMT ) and Microsoft (NASDAQ: MSFT ). But again, there are a lot of small-caps out there and the risk/reward profiles are all over the spectrum. Don’t get caught buying overpriced small-caps or hold onto looks for too long waiting for a turnaround. Disclosure: None