The final week of a difficult September began on Monday with a mixed session, as recovery names and technology went their separate ways. Meanwhile, all eyes will be on Washington in the coming days as Congress has a lot on its plate, especially passing a budget to avert a government shutdown.
The Dow now has a four-day winning streak after advancing 0.21% (or about 71 points) to 34,869.37. Meanwhile, the NASDAQ slipped 0.52% (or about 77 points) to 14,969.97 amid rising yields, while the S&P ended a three-day winning run by declining 0.28% to 4443.11.
It was a heckuva lot better session than last Monday when each of the major indices plunged by 1.7% or more. But that story had a happy ending as an acceptable Fed statement helped stocks stage an impressive turnaround that ended with slight gains by Friday, breaking weekly losing streaks for all the indices.
It was all the more impressive since the back half of September is considered the toughest time of the year for the market. Investors even had to deal with the potential default of Evergrande, China’s largest property developer. We haven’t heard the last of this issue, but it isn’t at the front of investor minds at the moment.
If you were thinking we might get an easier end to this crazy month… think again! Just as the Fed was in the spotlight last week, now it’s time for Washington to take centerstage. The main issue is that Congress needs to fund the government by the end of September (Thursday) to prevent a shutdown in October.
As if that weren’t enough, they’ll also be looking at passing the $1 trillion infrastructure bill and they still need to raise the debt ceiling sometime in October to avoid an unprecedented default of U.S. debt.
Get ready for another eventful week. By the way, stocks are down by approximately 1.5% in September with three more sessions to go.
Today's Portfolio Highlights:
Insider Trader: Looks like the recovery play is back! Tracey thinks the financials might be poised for another rally in the next few months, so she bought Texas Capital Bancshares (TCBI) and Old Second Bancorp (OSBC) on Monday. TCBI is a regional bank that has a new management team and a turnaround plan, which includes adding branches throughout Texas and adding a broker-dealer business. Earlier this month, the Chief Risk Officer and the CEO bought shares in what the editor considers to be “confidence” buys. Meanwhile, OSBC is a 150-year-old small-cap community bank from Aurora, IL that experienced a cluster buy this month. Shares were recently picked up by an EVP, the Vice Chairman and two directors. One of these directors bought three times this month. Tracey added each name with a 10% allocation, while also getting out of Hibbett (HIBB) since the sports apparel retailer is a “mess” right now. Learn a lot more about all of today’s moves in the full write-up.
Technology Innovators: The push to make this portfolio more aggressive continued on Monday with Brian’s addition of Datto Holding (MSP), a provider of cloud-based software and technology solutions. The company is on a roll with three straight quarters of positive surprises, bringing the four-quarter average to just under 22% (including a slight miss in last year’s third quarter). Rising earnings estimates gave MSP the enviable status of Zacks Rank #2 (Buy). EPS is still very small for this name, which explains its “stiff” PE of 44x. Other value characteristics are more reasonable. As usual, Brian is keeping an eye on the company’s operating margins, which have improved to 8% from 2.6% in the past few quarters. These are low numbers for such a stock, so the editor thinks MSP could be due for an aggressive shift higher in the coming quarters. Read the full write-up for more specifics on this new addition.
Commodity Innovators: It’s been a bumpy ride for Continental Resources (CLR) in this portfolio. Shortly after Jeremy added this E&P company on July 8, the position plunged and came close to the portfolio’s max loss as crude came under pressure. But the editor held on under difficult circumstances, and today was able to sell CLR for a nice 26.7% return in less than three months. The new addition is IPath Series B Bloomberg Cotton Subindex Total Return ETN (BAL), as supply shortages are lifting cotton prices toward 2021 highs. Jeremy sees BAL as a mid-term holding. The full write-up has more on these moves. By the way, this service also had the best performer of the day as Cabot Oil & Gas (COG) rose 8.5%. It also has three of the top 5 winners of the past month with COG rising 27.7%, while EnLink Midstream (ENLC) and CF Industries (CF) increased 27.6% and 24%, respectively.
Value Investor: Back in mid-August, Tracey sold Magnolia Oil & Gas (MGY) for a nearly 40% profit as the oil trade was breaking down again. Through all the ups and downs though, she continues to be bullish on energy. E&Ps should especially benefit from higher prices, so the editor decided to buy MGY once again on Monday. The company has a great balance sheet, while earnings are expected to soar moving forward. But that wasn’t all!
Tracey also wants more retail/consumer-focused exposure in the portfolio, so her second addition today was American Eagle (AEO). The company has a couple strong brands, making it a big player in reopening areas like athleisure and denim. But the editor is also impressed with its acquisition of AirTerra, a startup logistics company that shows AEO’s interest in tech and innovation investment. Needless to say, MGY and AEO are both cheap at the moment with solid potential moving forward. Read the full write-up for a lot more info on today’s action.
Black Box Trader: All four of the sells this week brought profits to the portfolio, including a double-digit return. Here are the stocks that were sold in this week's adjustment:
• Range Resources (RRC, +30.6%)
• Goldman Sachs (GS, +5.7%)
• Signet Jewelers (SIG, +5.6%)
• American International Group (AIG, +3.7%)
The new buys that filled these spots included:
• Capital One Financial (COF)
• Johnson Controls (JCI)
• LKQ Corp. (LKQ)
• Textron (TXT)
Read the Black Box Trader’s Guide to learn more about this computer-driven service.
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