There are plenty of reasons for investors to play it safe right now. In addition to the fears of a Fed rate hike deflating the market in the second half and continued challenges overseas in Europe and China, earnings have been pretty lackluster.
In fact, FactSetâ€™s earnings insights estimate a blended earnings decline of 2.2% for SP 500
Â components â€” the first year-over-year decline since the third quarter of 2012. Part of that can be attributed to continued pressure on energy stocks and strong dollar headwinds, but frankly, those excuses are cold comfort to investors sitting on a largely flat market year-to-date.
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But while the big picture seems to be stagnant and challenging, itâ€™s important to remember that there are a handful of stocks that are flying high. Consider the recent Wall Street Journal headline trumpeting â€œThe Only Six Stocks That Matter,â€ pointing to Amazon.com
Â , Google
Â , Apple
Â and Gilead Sciences
Â as firms that account for the lionâ€™s share of gains in major indices this year.
Bears would argue that this is a sign of trouble. But stock pickers and traders should see this as an opportunity to be selective and take shelter in the few growth stories that exist.
You likely know Google, Amazon and other big names. But some smaller momentum plays are worth checking out. Here are three of my favorites:
Market Cap: $9.3 billion
YTD Return: 52%
Â has wowedÂ Wall Street this summer, with the stock going public at $20 a share in June, then opening at about $30 or so for an immediate 50% pop after the IPO.
Now, Fitbit is trading in the upper-$40s, with expectations high for earnings slated to be reported on Aug. 5.
Fitbit is a fast-growing stock that is a dominant name in the rapidly expanding realm of fitness wearables. And while plenty of other tech names have rushed their IPOs lately simply to cash in, Fitbit is actually ready for the scrutiny of Wall Street because of powerful momentum â€” and most importantly, solid profits.
Consider that Fitbit filingsÂ show revenue soared roughly threefold year-over-year in the first quarter, to $337 million from $109 million, while EPS soared almost six times, to 33 cents from 6 cents. Thatâ€™s because gross margins expanded impressively, to 50% from 41% year-over-year.
This is the level of profitability investors are starting to demand from hot tech names. And if Fitbit keeps up its track record of growth on both the top and bottom lines, there could be even more optimism about its future.
Fitbit is still largely under the radar, with just 12 analysts initiating coverage of the stock and many only recently joining the party. When you take this lack of coverage, coupled with a strong history of growth, the deck seems stacked for blowout earnings surprises as Fitbit continues to maintain its strong brand in the wearables space.
Yes, there is competition from the Apple Watch, and other gadgets may emerge down the road. But Fitbit remains the gold standard with its huge brand recognition, the tailwind of organic growth in wearables, and robust profit margins.
If you want to jump into the next consumer tech trend, Fitbit stock is the way to go.