Markets ended January on a high note with the Dow Jones up 2.32%, the S&P 500 rising 1.75% and the NASDAQ eking out a 0.50% gain. The MCSI Emerging Markets Index also had a strong week, ending 4.23% higher.
Your position in the Direxion Daily CSI 300 China A Share Bear ETF (CHAD) rose 3.96%, as the Chinese stock market continued its broad-based selloff. The Shanghai stock market fell an additional 1.78% overnight, so this position continues to go in our favor.
This week’s Bull Market Alert recommendation is Dycom Industries (DY), a specialty engineering and construction firm for the telecommunication industry and electric and gas utilities.
Here’s why I expect Dycom to perform well over the coming weeks.
First, Dycom boasts strong fundamental growth prospects. Dycom’s bread and butter is telecom infrastructure contracts, which have seen soaring demand as telecom giants expand their networks. Major Dycom clients like Comcast and AT&T are accelerating their deployment of fiber-based broadband to homes and small businesses. This trend is only likely to accelerate in 2016 and 2017 in what Dycom CEO Steven Nielsen has called a crucial period for an upswing in wireline networks investments.
Second, Dycom’s growth prospects are reflected in its consistent earnings, with the stock beating the consensus earnings estimate for seven consecutive quarters. In fact, over the past four quarters, the company beat average earnings per share (EPS) estimates by 66%, while boasting triple-digit-percentage bottom line growth. Just recently, the strong outlook for Dycom’s forthcoming earnings compelled analysts to raise estimates from $3.27 to $3.92 per share, representing 62.6% EPS growth.
Finally, the recent selloff in the stock represents a terrific buying opportunity. After a rip-roaring 2015 which saw the stock rise by 99%, Dycom has sold off 11.41% in the January pullback. Looking at the charts, the stock is technically oversold and due for a strong bounce, which looks to have begun on Friday.
So buy Dycom Industries (DY) at market today, and set your initial stop at $53.00. After Friday’s surge in the market, the call options are overvalued, so I am holding off on recommending Dyson options today.
Portfolio Update
Direxion Daily CSI 300 China A Share Bear ETF (CHAD) rose 3.96% last week. This inverse bet on China is up a whopping 19% in January alone. Sadly (for China), this is likely one of the highest-returning Chinese investments over the past month. CHAD is a BUY.
Phillips 66 (PSX) added 0.15% for its first week in the portfolio. PSX reported better-than-expected earnings of $1.31 per share last Friday, beating the $1.25 estimate. Refining operating income was $475 million vs. a $416 million estimate. PSX also reported repurchasing $406 million worth of shares last quarter for a 2015 year-total of $1.5 billion. Warren Buffett also continued to buy the stock, hand over fist. PSX is a BUY.
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