The following is an excerpt from Zacks Chief Strategist John Blank’s fullMay Market Strategy report. To access the full PDF, click here.
Info Tech Leads Q1 Earnings Upgrades
S&P 500 earnings could record +12.5% y/y growth in Q1-2017, the best since Q3-2011. What’s hot? Info Tech. In Q1, it is clocking +15.8% annual earnings growth.
And what is HOT within Tech? Semis!
That’s the industry I focus on in May.The ratio of Nasdaq-to-S&P 500 share indexes is the now the highest it has been -- since Sept 2000.
Range-bound Oil Prices
NOTE: OPEC meets again, on May 25th.
Look back to look ahead. Booming global share markets after the U.S. election, in part, reflected hopes of an oil production deal. A deal eventually came to pass in late November when OPEC met in Vienna. A subsequent agreement between non-OPEC producers also cut supply in December.
That helped deliver a significant boost to crude prices.
What does this tight oil trading range portend for global markets?
The tight range means there is neither excessive fear nor greed available to oil producing countries in 2017. It also explains why Mexico recently sold off hedges on oil prices recently. They don’t want to suffer from any downside risk if this oil price story goes south.
The rise in U.S. rig count looks ominous, but this recovery to above 800 rigs is off a low number.
1,400 -- That’s the number of rigs seen in 2014.
Zacks May Sector/Industry/Company Telescope
May industry tables at Zacks have changed -- dramatically.
The sole carryover from April is Info Tech, which remains the most Attractive of S&P 500 sectors.
After Tech, Zacks covering analysts noted the rise of Consumer Staples, Materials, and Industrials. There showed clearly a spending gain --made by business cap-ex-- as the U.S. unemployment rate hit 4.5%, which is tight.
The other May move up in sentiment was made by Health Care. Could this sector be back from the dead? The shorts may be packing up their bags here.
(1) Info Tech rises to Very Attractive. Semis are HOT, and Misc. Tech is great too.
Zacks #1 Rank (STRONG BUY) Company --
Ultra Clean Holdings (UCTT - Free Report) ): This is a $700 million market cap stock on a tear recently.
The company is a developer and supplier of critical subsystems for the semiconductor capital equipment, flat panel, solar and medical device industries.
Ultra Clean offers its customers an integrated outsourced solution for gas delivery systems and other subassemblies, improved design-to-delivery cycle times, component neutral design and manufacturing and component testing capabilities. Ultra Clean's customers are primarily original equipment manufacturers for the semiconductor capital equipment, flat panel, solar and medical device industries.
Ultra Clean is headquartered in Menlo Park, CA.
(2) Consumer Staples rises, all the way to Very Attractive. The industry leader is Soaps & Cosmetics, followed by Agri-Business, Tobacco, and Food/Drug Retail.
Zacks #2 Rank (BUY) Company --
Tyson Foods, Inc. (TSN - Free Report) : This is a $22.4 billion market cap stock, with a quarterly report due on May 8th.
The company is the world's largest fully integrated producer, processor and marketer of chicken and poultry-based food products. Tyson is a comprehensive supplier of value-added chicken products through food service, retail grocery stores, club stores and international distribution channels.
Although its core business is chicken, in the United States Tyson is also the second largest maker of corn and flour tortillas under the Mexican Original brand and through its subsidiary Cobb Vantress, the top chicken breeding stock supplier.
(3) Materials rise to Attractive. The 2 leaders are Steel and Chemicals.
Zacks #1 Rank (STRONG BUY) Company --
Huntsman Corporation (HUN - Free Report) ):This is a $5.87 billion market cap stock.
The company is among the world's largest global manufacturers of differentiated and commodity chemical products for a variety of industrial and consumer applications.
(4) Industrials rise to Attractive. The leaders are many: Machinery, Pollution Control, Construction-Building Services, and Metal Fabricating. There is a cap-ex spending cycle picking up.
(5) Health Care rises to Attractive. The leader is Medical Care.
(6) Consumer Discretionary falls back to a Market Weight. The industry leader is Publishing, followed by Leisure. A big loser is Home Furnishing-Appliance
(7) Financials fall back to Market Weight. The leader is Banks & Thrifts. Investment Funds are the big loser.
(8)Telco Services stays a Market Weight.
(9) Energy falls back to Unattractive. The leader is Energy-Alternates. The big losers are Oil & Gas Integrated and the Oil & Gas Pipelines.
(10) Utilities fall to Very Unattractive. There is no strong industry here.
This is an excerpt from Zacks Chief Strategist John Blank’s full May Market Strategy report. To access the full PDF, click here.