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3 Key Investment Themes: Zacks FEB Market Strategy

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The following is an excerpt from Zacks Chief Strategist John Blank’s full Feb Market Strategy report To access the full PDF, click here


My thinking? Where institutional money flows are where stock returns rise.

This month, after I followed the money, I focused on visible long-term investing themes.

Here are three worth knowing about:

I. A U.S. bull market driven by tech

Over the last decade, the S&P 500 index was up +248%. The Dow Jones was up +243%. But the tech-heavy Nasdaq was up +411%.  

What about the last 12 months? We have still seen strong ETF fund inflows to Tech, and to a more recent rise in Real Estate. We have seen fund outflows from Finance and Health Care ETFs.

What about the top performing ETFs of the decade? Tech reigns again! Semiconductor chip stocks are at the top. Biotech, the Internet and Medical Devices are not far behind.

Want another notable ETF event, though?

II. The rise of Environmental, Social, and Governance (ESG) fund flows

These have grown from nothing to nearly $20 billion in 2019.

Hitting just before Davos, a new report by the World Economic Forum says global risk perceptions are shifting. While in previous years economic problems were deemed the biggest threats to mankind, fears of a climate breakdown are now dominating.

In its 15th Global Risks Report published in January 2020, the World Economic Forum (WEF) has said that for the first time in the report's history all of the "top long-term risks by likelihood" are environmental. While in the previous decade economic and financial crises were seen as most dangerous, the report has found that risk perceptions have shifted to extreme weather, environmental disasters, biodiversity loss, natural catastrophes and failure to mitigate climate change.

"Climate change is a very real and serious threat to society," said Alison Martin, a senior member of Zurich Insurance Group, who helped compile the publication, alongside consultancy Marsh & McLennan and a number of renowned universities from across the world.

"Extreme weather events such as heat waves and flooding are becoming more commonplace and severe, leaving communities to deal with often devastating humanitarian and economic costs," she added.

III. What of Cannabis ETFs?

So far, these have been a bust. Unless you shorted!  Now that Mary Jane stocks are much cheaper, let’s hope this niche turns up in 2020.


IV. Zacks February Sector/Industry/Company Telescope

This month, the Info Tech sector is on fire!

Growth stock industries across the Info Tech sector remain at the top of the ‘buy’ list. Misc. Tech, Computer Office Equipment and Computer Software Services are killing it. So too are Consumer Electronics and Semi Chips.

Health Care and Financials took a step down. This feels like a pause in the domestic economy.

Materials, and Industrials are very poorly ranked. These two downgrades speak to weaker global growth fundamentals, now exacerbated by the Coronavirus.

(1) Info Tech remains Very, Very Attractive. Best-in-class by a wide margin again. Misc. Tech, Computer-Office Equipment and Computer-Software Services lead the way. Electronics and Semis show up as very strong too.

Zacks #2 (BUY) Stock—Tokyo Electron (TOELY - Free Report)

This is a $37B market cap company. There is a 1.5% annual dividend.

This is a semi chip company mainly engaged in the manufacture and sale of electronic products for industrial uses. Tokyo Electron is the largest manufacturer of integrated circuit (IC) and flat-panel display (FPD) production equipment in Japan and the 3rd largest in the world.

(2) Energy rises to Very Attractive. Energy-Alternates and Coal led the way. Very strange. The oil & gas businesses are looking better than you might think.
Zacks #2 (BUY) Stock—Clearway Energy (CWEN - Free Report)

This is a $4.1B market cap company. There is a 3.75% annual dividend.

Founded in 2012, Clearway Energy, along with its subsidiaries, owns and operates a diversified portfolio of contracted renewable and conventional generation, along with thermal infrastructure assets in the United States.

Clearway Energy’s asset portfolio includes nearly 7,000 megawatts of wind, solar, thermal and natural gas-fired power generation facilities, as well as district energy systems.

(3) Communications Services stays Attractive. Utility-Telephone Services and Telco Services look OK. Telco Equipment is lagging now.

Zacks #1 (STRONG BUY) Stock—PLDT (PHI - Free Report)

This is a $4.2B market cap company. There is a 4.7% annual dividend.

PLDT Inc. offers all types of telco services. Its operating segment consists of Wireless, Fixed Line and Others. The wireless segment provides cellular, wireless broadband and other services, and digital platforms and mobile financial services.

PLDT, Inc., formerly known as the Philippine Long Distance Telephone Company, is based in Makati City, the Philippines.

(4) Consumer Discretionary stays at Attractive. Consumer Electronics, Apparel, and Media look very attractive. Home Furnishing and Publishing look OK too.
(5) Health Care gets to strong Market Weight this month. Medical Care is in the top spot.

(6) Utilities stay a Market Weight. Utilities-Gas Distribution still looks best.

(7) Financials fall to Unattractive. Investment Banking & Brokering is the sole niche holding up well. That must be due to new records in stock indexes.
(8) Consumer Staples stay at Unattractive. Food/Drug Retail leads the way now. Beverages look good too.
(9) Industrials fall to Very Unattractive. Business Services looks the best. The rest are clearly struggling. The business cap-ex slowdown is broadly apparent.

(10) Materials falls to Very Unattractive. Chemicals, Containers & Glass, and Paper look awful. That speaks to the global growth slowdown & coronavirus.

To conclude, note this return metric. All three stocks I picked this month offer strong annual dividends (1.5%, 3.75% and 4.7%).

Surely, this is a fourth and final (more embedded) investment theme to focus on!


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