Profit from Fuses and Switches

It was a flat week for stock markets across the globe, with the Dow Jones up 0.26%, the S&P 500 gaining 0.17% and the NASDAQ rising 0.12%. The MSCI Emerging Markets Index (EEM) pulled back 0.48%.

Big gainers in your Bull Market Alert portfolio included Cirrus Logic, Inc. (CRUS), which rose 1.45%; Healthcare Services Group, Inc. (HCSG), which gained 1.05%; and Drew Industries, Inc. (DW), which matched it with a 1.05% gain.

Three holdings — Avista Corporation (AVA), Allete, Inc. (ALE) and NorthWestern Corporation (NWE) — dropped below their 50-day moving averages and shifted to a HOLD.

This week’s Bull Market Alert recommendation, Chicago-based Littelfuse (LFUS), is the kind of under-the-radar stock that escapes the attention of most investors.

Maybe that’s because the company is in an unexciting business. You see, Littelfuse produces fuses and protectors, gas discharge tubes, electronic switches, solenoids, battery management devices and protective relays.

However, it is a lot easier to get excited about the company when you compare its stock price to the S&P 500 year to date.

LFUS vs. the S&P 500 YTD

Here’s why I think the stock is set to continue its strong run. 

First, Littlefuse continues to grow both organically and by gobbling up complementary businesses. In late August, the company announced it had completed its acquisition of a select portfolio of products from ON Semiconductor Corporation, with annualized sales of approximately $55 million. This acquisition is only the most recent one out of 11 different acquisitions that Littlefuse has undertaken since 2003.

Second, the company’s financial results continue to impress with their steady growth. Sales for Q2 of 2016 were $271.9 million, a 22% increase. Electronics sales increased 25%. Automotive sales increased 30%. Operating margins improved in both of these segments.

Finally, Littelfuse is owned by no fewer than 10 separate top-performing small-cap-growth investment strategies. The smart money is betting on Littelfuse’s continued success.

So buy Littelfuse (LFUS) at market today, and place your stop at $115.00.

With the stock trading near its highs, I am holding off on an options recommendation this week.

Portfolio Update

iShares MSCI Emerging Markets (EEM) dipped 0.48% last week. EEM has had a terrific year overall and is up 11% in your portfolio since I recommended it in March. With the Federal Reserve keeping interest rates steady, a post-election December increase is still in the cards. Despite the threat of higher rates, emerging markets exchange-traded funds (ETFs) have outperformed U.S. equity ETFs, even taking in $5 billion for the month of August. Fear is just absent. EEM is a BUY.

Healthcare Services Group, Inc. (HCSG) rose 1.05%. Analysts at Baird recently initiated coverage on HCSG, setting a rating of “Outperform” along with a $46 price target. This represents a potential 16% rise from last Friday’s close. The firm also believes that HCSG’s debt-free stance and excellent free cash flow stand as long-term positives. HCSG is a BUY.

Cirrus Logic, Inc. (CRUS) rose 1.45% over the past five trading days. Have you ever wished the music sounded better as it came out of that little speaker on your mobile device? Cirrus has solved this problem by announcing new low-power audio and voice processing technology. A dramatic leap forward, this new technology will finally give users high-fidelity sound output from the smallest of speakers on their mobile devices. CRUS is a BUY.

Cantel Medical Corp. (CMN) fell 3.88% for the week despite a good earnings report. CMN reported earnings last Thursday for the quarter ended July 2016. Earnings per share (EPS) came in at $0.48 vs. an estimated $0.45 EPS. Revenue increased 18.3% to $179.0 million year over year and beat the $178.6 million analyst consensus estimate. CMN remained above its 50-day moving average (MA) and stayed at a BUY.

Drew Industries, Inc. (DW) gained 1.05% for its first week (back) in your portfolio. DW has been on a stellar run since reporting earnings back in May — hitting new highs nearly every week. The stock’s recent dip last month down to its 50-day MA, coupled with a few spikes up from this level last week, signal that the time could be right for DW to continue higher. DW is a BUY.

Sincerely,

Nicholas A. Vardy