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The Sky Is Not Falling

Screen of the Week: This week, Kevin Matras talks about why the sky didn’t fall in the first quarter, and why it’s unlikely to do so in this new quarter. He also shows you how to get ready for an eventual bullish market turnaround, and gives out three new picks from this week’s screen.

So we’ve made it past the first quarter—and the sky didn’t actually fall. Now there are some who are revising their forecast for the end of world to end in the second quarter.

Of course I’m being facetious. But nonetheless, don’t you believe it.
Who knows what will happen? Will there be more bad economic reports? Probably. Will there be more write-downs? Likely. But is the worst over? Many are starting to think so. And the market seems to be voting with a strong yes! We shall see.
Let’s take a look at some numbers to put the state of the economy (or at least the market) into perspective.
I compared the stocks in the S&P 500 (excluding Financials), for this quarter versus the same quarter a year ago, and here’s what I found:

  • This quarter’s median estimate is for a 9.1-percent growth rate (which is pretty good)
  • Next quarter’s estimate is for 10.2 percent (even higher than this quarter’s.)
  • The one after that projects over 11.5 percent
  • And the one after than projects over 12.5 percent

To be fair, I then put the financials back in, and ran the numbers again:

  • This quarter’s median estimate does come in lower at 7.3 percent (but that’s still not that bad)
  • Next quarter’s estimate is also a bit lower, but still a respectable 8.3 percent
  • The one after that projects over 10 percent
  • And the one after that projects nearly 14 percent (that’s even higher than the number was without the financials)

So I do think a lot of this new hand wringing is a bit misplaced. Again, do we still have problems out there. But the Fed has expertly guided us through this crisis, opened up the credit markets and America is getting back to business. I’m therefore running a screen today that’s also looking for good earnings on this quarter versus the same quarter a year ago (for the next four quarters). And these stocks will have earnings above the median number for the stocks in the S&P. I’m also looking for them to have a Zacks Rank of a 1, 2 or 3—which is a strong buy, buy or hold (i.e., market perform), respectively.
And, for good measure, I’m only considering stocks at or above $5 that have average daily trading volumes (average 20-day volume) of 50,000 shares or better.

There were 30 stocks that passed this screen. Here’s three of them:

ORBK Orbotech, Ltd.
RTIX RTI Biologics, Inc.
ULTI Ultimate Software Group, Inc.

Get the rest of the stocks on this list, and start planning how you can position yourself to ride this recovery. Find out how to pick the right stocks, right now, with a free trial to the Research Wizard stock picking and back-testing program:

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
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