CHAPEL HILL, N.C. — Several major stars are lining up nicely behind a continuation of the bull market for at least a few more months.
This isn't to say there are no problems, of course. Partisan wrangling in Washington will return at least by January, when currently approved government funding runs out, and then again in February, when the government's debt ceiling is reached. The economy remains anemic, yet not so weak as to persuade the Federal Reserve to continue their quantitative easing program for the foreseeable future. And, depending on the valuation metric used, the stock market as a whole is already at least fairly valued — if not overvalued.
Nevertheless, the best performing stock market timers on the Hulbert Financial Digest's monitored list are quite bullish, both in their own right and in contrast to those timers with the worst track records. As if that's not enough, favorable stock market seasonality kicked in at the beginning of this month, and that should last until next May Day.
On the theory that you should follow the lead of the best performers, this column presents you with a list of those industry groups and individual stocks that currently are most highly recommended by the top performers.
To come up with the industries and stocks listed below, I focused on the select group of advisers on which I base my companion service. Specifically, I take all those advisers on the Hulbert Financial Digest's monitored list who have beaten the stock market over the last 15 years, and then choose the 15 of them with the best returns over the trailing 12 months.
Five industry sectors stand out for having received the greatest number of upgrades over the last three months from these top performers. Within each, I also list those individual stocks that are currently recommended for purchase by at least two of those top performers.
The five most upgraded industry groups, in descending order, are:
Even though this sector has received the greatest number of recent upgrades, there is just one stock within it that currently is recommended for purchase by at least two of the top performers: Celgene (CELG). This suggests that the top performers like the sector in general more than any one stock in particular, so an exchange-traded fund may be the way to profit from the sector. Two possibilities are the MarketVectors Biotech ETF (BBH) and the iShares NASDAQ Biotech ETF (IBB).
There are four stocks within this sector that are recommended by at least two top performers: Boston Scientific (BSX), Medtronic (MDT), St. Jude Medical (STJ), and Stryker (SYK).
Just one stock in this sector is recommended by more than one top performer: OshKosh (OSK). Two ETFs that have at least some exposure to the sector are the iShares Dow Jones Transportation Index Fund (IYT) and the SPDR S&P Transportation ETF (XTN) .
Believe it or not, there are no stocks in this sector that at least two top performers are recommending — even though the sector itself is well liked. This means that, to gain exposure to the sector, you should invest in an ETF rather than any one stock. One option is the SPDR S&P Retail ETF (XRT).
Finally, there are three stocks in this sector that are recommended by at least two of the top performers: Hewlett-Packard (HPQ), Lexmark International (LXK), and Seagate Technology (STX).