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Making the Most of a Pullback

Earnings season can make you laugh or make your cry. So far, there’s been a lot to smile about in the reports, which has certainly been reflected in the strong performances of the major indices. But on Wednesday, a few disappointing reports (AMD, T, CMG) led to a rough session for stocks. 

The Dow came off of yesterday’s all-time high with a decline of 0.48% to 23,329.5. The S&P was down 0.47% to 2557.2 while the NASDAQ slipped 0.52% to 6563.9. Each of these indices were off their lows of the session. Tomorrow will be the biggest day of earnings this week with tech giants like Google, Amazon and Microsoft scheduled to report.

"In the end, today was a pullback. It wasn’t even that big of a pullback, but things like that are healthy for the market. Stocks cannot move in one direction and one direction only. There needs to be a time for stocks to be sold," said Brian Bolan in Home Run Investor

The best opportunity to buy in a strong earnings season is during a pullback like we saw today.  Case in point, the portfolios were very active on Wednesday as they took advantage of this break in the rally to put some money to work. Income Investor, Home Run Investor and Momentum Trader all bought new positions, while TAZR Trader added to an existing one. Meanwhile, Insider Trader and Counterstrike each had double-digit winners. Let’s get right to it... 

Today's Portfolio Highlights: 

Income Investor: The industrials segment has been one of the top-performing groups this year, and Brian wants the portfolio to have more exposure. On Wednesday, he added Illinois Tool Works Inc. (ITW), a Zacks Rank #2 (Buy) that has beaten the Zacks Consensus Estimate in 7 of the last 8 quarters. In its most recent report, the company topped earnings and revenue expectations while raising guidance for the full fiscal year. Analysts responded with upward revisions. But also of great importance to this portfolio, ITW is a “dividend aristocrat” that pays a nice 2.01% dividend yield. Check out the full write-up for all of Brian’s analysis. 

Home Run Investor: The chip space has been very hot for a while now, and Brian Bolan doesn’t expect that to change anytime soon. The editor plans to capitalize with a position in Electro Scientific Industries (ESIO), which uses lasers to drill or cut microchips. The company reported a solid beat and raise quarter last time, and Brian is hoping for a repeat performance when it next reports on November 1. Eventually, he believes that ESIO could make it to the top of the portfolio…but it will need a few quarters to get there. Read the detailed analysis of this new pick in the complete commentary. 

Insider Trader: In a purely defensive move, Tracey sold half of Milacron (MCRN) ahead of its earnings report. This plastic technology and processing stock usually gets volatile around its earnings releases. With the company expected to report tomorrow, the editor felt this was a good time to sell 50% and secure a nice gain of approximately 16% in 2 months. 

TAZR Trader: Kevin does NOT take the “glass half-empty” view of Advanced Micro Devices’ (AMD) recent report. The editor notes that the AI revolution is just beginning with massive growth potential as corporations ramp up investments and R&D. Therefore, this #2 to “King NVDA” is making the right moves at the right time to be a key player in advanced computing. Kevin says AMD could dip 10% from here, but it’s upside potential over the long run is as high as 25% to 50%. Therefore, he increased the portfolio’s position in AMD by 50% on Wednesday. Get a lot more analysis on this move in the full write-up. 

Counterstrike: Jeremy has been waiting for some pullback to make a few moves…and today he got it. But first, the editor needs to sell a few positions to make room. He sold all or parts of three holdings, which included a more than 14% return for half of VelocityShares 3X Long Crude Oil ETN (UWT). The bottom line is that crude has stalled at $52, and Jeremy doesn’t want the full position if it falls back to $50. Read the full write-up for more on all of today’s moves. 

Momentum Trader: A few days after breaking through $200, Lam Research (LRCX) is now on a two-session losing streak. Dave jumped at the opportunity to add this Zacks Rank #1 (Strong Buy) semiconductor processing systems company at a good price on Wednesday before it turns higher again. Read the complete commentary for a lot more on this new addition, including a breakdown of its chart. 

All the Best,
Jim Giaquinto

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