U.S. markets closed a mixed week, with the Dow Jones up 0.10%, the S&P 500 dropping 0.97% and the NASDAQ correcting 2.65%. The MSCI Emerging Markets Index fell 1.49%.
With U.S. stock markets pulling back over the past week, you hit five of your stops, locking in some big double-digit-percentage gains.
You stopped out of Littelfuse (LFUS) at $147.70 for a 15% gain.
You hit your stop in Cirrus Logic, Inc. (CRUS) at $56.40 for a 10% gain.
LogMeIn (LOGM) stopped out at $106.90 to lock in a 20% gain.
ABM Industries Incorporated (ABM) hit its stop at $42.75 for a 15% profit.
Finally, The Chemours Company (CC) hit its stop at $23.10 for a 10% gain in the stock. With momentum behind this stock still intact, I am recommending that you re-enter it at this time. Place your stop at $19.90.
You have had a very strong month in your Bull Market Alert portfolio. That is because the U.S. small-cap index has been on fire since the election. The banking sector has been one of the small-cap market’s strongest performers. The prospect of an interest rate rise, combined with the promise of faster economic growth, has lit a fire under this group of stocks.
You already have a position based on this theme in Home Bancshares Inc. (HOMB). This week’s Bull Market Alert recommendation doubles down on this investment thesis with Texas Capital Bancshares Inc. (TCBI).
Founded in 1996 and headquartered in Dallas, Texas, TCBI is a bank holding company for Texas Capital Bank. The bank offers banking products to commerical businesses, including business deposit products and services, and wealth management and trust services. Texas Capital primarily serves clients in the Austin, Dallas, Fort Worth, Houston and San Antonio metropolitan areas of Texas at 12 full-service banking locations.
As I noted above, the big picture investment case for TCBI is a thematic bet on the continued strength of U.S. regional banks.
More specifically, two key earnings drivers for the sector — loan growth and interest rates — have improved markedly in recent months.
First, commercial and industrial loan growth has rebounded sharply in Q4, leaping an annualized 5.5%. That compares with a drop of 0.8% in Q3.
Second, interest rates also have surged since Donald Trump’s victory. The 10-year Treasury is now at 2.30%, up from 1.87% pre-election and 1.61% as of Sept. 30. Soaring interest rates benefit bank net interest margins, helping move the whole sector ahead.
Finally, TCBI’s business is based in Texas, one of the most successful of the U.S. state economies. Up until recently, it ranked first out of the 50 states in job growth in the Unites States. If Texas were a country, its economy would rank as the 10th largest in the world. The Texas economy is now bigger than the economies of both Russia and Canada.
So buy Texas Capital Bancshares Inc. (TCBI) at market today and place your stop at $60.00.
With the options on the stock very illiquid, I am holding off on making an option recommendation for now.
Starting this week, I am changing the format of the Bull Market Alert portfolio update section.
This new format — in the form of a table — provides you with an improved overview of the weekly performance of your Bull Market Alert recommendations.
In column 1, you will find the latest closing price of your position (“Last”).
In column 2, you will find your position’s performance over the previous five trading days (“5D %Chg”).
In column 3, you will see whether your position is above or below its current 50-day moving average (“50D MA”).
Recall that the general rule of thumb in the Bull Market Alert is that a position is a BUY if it is trading above its 50-day moving average and is highlighted in GREEN.
A position is a HOLD if it has dropped below the 50-day moving average and is highlighted in RED.
Finally, in column 4, I am including your position’s performance over the past month (“1M %Chg”).
Nicholas A. Vardy