The New Year ushered in a new crop of stock market leaders.
Here's a look at six nonleveraged
that outperformed the stock market the most in January.
What they all seem to have in common is that they lagged the
market in 2011, followed by mixed returns last year. So they
could be catch-up or reversion-to-the-mean plays, in which stocks
that snoozed as the market leapt eventually join the leaders.
Sector and country rotation occurs as
sell their winners on the belief that they're overvalued
and buy undervalued losers.
Victory In Vietnam
Market Vectors Vietnam ETF (
) vaulted 19% in January.IShares MSCI Emerging Markets Index (
) ticked down 0.3%. The No. 1 performing ETF of the month has
rallied 36% in the past year vs. 8% for EEM.
Vietnam staged a turnaround after crashing 44% in 2011. The
economy slowed that year while inflation spiked 23% and the trade
deficit widened, Neena Mishra, ETF research director at Zacks
Investment Research wrote in a
"As a result, the government passed a resolution to restrain
credit growth and control inflation and the central bank raised
rates," Mishra wrote.
She continued: "Vietnam is expected to grow by almost 6% over
the next 25 years and per capital income is expected to grow by
more than six times over the same period. Vietnam continues to be
the main beneficiary of the migration of low-end manufacturing
out of China as the producers try to take advantage of wages that
are about half of that in China. The shift in China's policy to
focus more on domestic consumption will also benefit Vietnam as
an outsourcing center.
"We may add that Vietnam now faces strong competition from
neighbors like Bangladesh, Myanmar and Cambodia in low-cost
manufacturing. However, in recent years the country has been
somewhat successful in moving up the value chain by starting
manufacture of higher-value products, in addition to its
traditional export items of clothing and footwear.
"The economy still suffers from some structural problems like
inefficient and wasteful public enterprises (which account for
about 40% of output), an undercapitalized banking sector and a
high trade deficit."
VNM sports the highest
IBD Relative Strength Rating
and IBD Accumulation/Distribution Ratings combination of 89 and
A+. It has outpaced nearly 90% of the market the past 12 months
and institutional investors are overwhelming sellers.
Solar Energy Shines
Guggenheim Solar (
) andMarket Vectors Solar Energy ETF (
) heated up nearly 16% for the month vs. 5% for
SPDR S&P 500
Index ETF (
). TAN and KWT have rocketed 35% the past three months vs. 7% for
The solar industry's fortunes may be turning for the better
after severely lagging the market the past four years because of
over production in China coupled with cuts in crucial government
subsidies in Europe and the U.S.
TAN and KWT crashed 29% in 2010, 64% in 2011 and 33% in
"2013 will mark a major shift for the solar industry as
industry participants shrink, minimizing supply and pricing
issues, and as geographic distribution improves," Todd
Rosenbluth, an ETF analyst at S&P Capital IQ, said in an
email. "We see this combination allowing for better fundamentals
and prospects for survivors in 2014."
Most solar stocks are trading deep below book value, he adds.
His top picks areAdvanced Energ y (AEIS),SunPower (SPWR) andTrina
Solar (TSL). Each are weighted about 5% in TAN.
TAN's top three holdings are Hong Kong-basedGCL-Poly Energy
Holdings , weighted 12%;First Sola r (FSLR) 8%; andMEMC
Electronic Materials (WFR) 6%.
Brokers Break Out
IShares Dow Jones U.S.
Broker-Dealers (IAI) notched a 13% gain in January. It's on the
mend after lagging the stock market with a 27% nosedive in 2011
while the market gained 2%. It performed on par with the market
last year. It started dominating three months ago, rising 22% vs.
7% for the SPY.
Wall Street powerhouses,Goldman Sachs (GS),Morgan Stanley
(MS), NYSE Euronext (NYX),Charles Schwab (SCHW) andCME Group
(CME) hold the heaviest weightings in the portfolio. They rose 7%
to 20% in January.
Credit Suisse has an outperform rating on Goldman, Morgan
Stanley and CME. It's neutral on NYSE and has no rating for
IAI wins big and losses big in comparison to the market and is
only appropriate as a small holding, says Timothy Strauts, an
analyst at Morningstar.
He wrote in a report about the ETF: "While trading volumes
help many of the firms in this portfolio generate transactional
revenue, many of the firms in this ETF's portfolio also rely
heavily on fees tied to assets under management. Thus, in rising
markets, asset-based revenues tend to bolster performance.
However, the significant operating leverage inherent with this
type of business model cuts both ways.
"Profitability can get crushed during periods of declining
revenues thanks to these firms' high level of fixed costs (that
is, employee compensation and rent). Of course, the opposite is
true during periods of strong market performance."
Oil And Gas Rev Up
Market Vectors Oil Services ETF (OIH) spouted 13% in January.
It's gained only 5% the past 12 months, lagging SPY by nearly 11
percentage points. But it leads in the short term, rising 12% vs.
7% for SPY the past three months.
S&P Capital IQ rates the industry neutral over the next 12
"While we still view the longer-term growth rate in upstream
capital spending as a (long-term) positive, we harbor some
concerns about near-term weakness outside of deepwater work,"
Rosenbluth wrote. "Our concerns stem in part from weakening
global demand, even in emerging markets such as China; rising
non-OPEC (Organization of Petroleum Exporting Countries) supply;
and greater influence of the onshore U.S. market, where we see
oil services demand as more volatile and beset by pressures from
"On the other hand, the expected influx of new deepwater rigs
through 2014 should spur demand for related services, and
deepwater work typically carries higher margins."
IShares Dow Jones U.S.
Home Construction (ITB) stair-stepped up 11% in January. It
developed an astonishing 77% return the past 12 months and 16%
the past three months. It tumbled 9% in 2011 while SPY added
S&P Capital IQ forecasts housing starts to increase 27.1%
to 991,500 in 2013, with multifamily developments outpacing
single-family. But it has a negative outlook on homebuilders over
next 12 months.
"We believe most publicly traded builders are in a stable
competitive position after cutting costs, retiring debt and
growing cash positions," Rosenbluth wrote. "However, we expect
increased foreclosure activity in 2013 to pressure home prices
and stall improvement in new single-family home sales.
"The housing market will improve over the next year, but be
shy of consensus views for stronger growth. It will take time
before buyers' confidence and the job market to improve enough to
support a more favorable view of home ownership."
Housing starts are less than halfway to recovering their
30-year high of 2.07 million in 2005. They averaged 1.74 million
a year from 2000 through 2004.
Here's a look at major housing data:
December housing starts: Up 12% over November and up 37% year
over year to a seasonally adjusted annual rate of 954,000.
December single-family starts: Up 8.1% in December, with
year-over-year growth of 18.5%.
Full-year 2012 housing starts: Up 27.4%, to 780,000 (from
612,100 in 2011).
December housing permits: Up 27.3% year-over-year for
single-family homes. Up 35% for multi-family units, suggesting
ongoing strength in rentals.
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