If you read the mainstream media and dark corners of the internet, the world appears dark and dangerous, especially for stock market investors.
The S&P 500 is trading at dangerously high multiples of earnings and assets.
The dividend yield is scraping along rock bottom.
A recession is looming right around the corner.
Commercial real estate will collapse, potentially crushing the banking system, sending shockwaves through the financial sector, and possibly even ending Western Civilization.
Inflation will be back with a vengeance.
War is imminent in the Middle East.
Politics on the home front are loud and obnoxious and will get worse before they get better.
We have had two major hurricanes, each doing enormous damage within less than a month.
Each of these statements has some degree of truth, and I will let you decide how much.
However, when we put on our momentum glasses and look at the markets, the darkness disappears rather quickly.
The S&P 500 remains in a strong uptrend.
Every sector is showing positive returns so far in 2024.
Almost 60% of stocks are trading above their 200-day moving average, a bullish indicator until it reaches well over 75%.
If a recession is on the horizon, someone forgot to tell the materials sector, which is solidly in an uptrend and has positive momentum.
Fundamental momentum for our first four stocks remains positive, and we are in a strong position heading into earnings season.
Our momentum pick this week comes from a sector that has lagged behind the leaders to some degree but is showing signs of life.
Concerns about OPEC production increases and a weak economy in China have kept oil prices low all year.
That, in turn, has kept something of a lid on energy stocks.
The sector has gone from a laggard to a leader recently, as energy stocks have been the pack’s leader over the last month.
We favor stocks that have been stronger than the sector and have the type of fundamentals that attract solid institutional buying pressure.
In the energy industry this year, that stock has been Baker Hughes (BKR).
Baker Hughes is one of the three largest oilfield services companies. It supplies oil companies with a wide range of products and services that help them explore for, drill for, and produce oil and gas.
Baker Hughes has had a very good year, with profits up sharply. The company has consistently exceeded not just its internal guidance but also Wall Street analysts’ estimates.
In the most recent quarter, Baker Hughes not only booked over $7.5 billion in new orders, the company increased bottom-line profits by 46%.
Wall Street has been scrambling to keep up with analysts’ estimates for 2024 and 2025.
Wall Street does not think it will slow down, as the company is expected to average earnings growth of over 35% annually for the next five years.
Baker Hughes will see strong growth over the next several years due to surging natural gas demand, which is a result of the electrification of everything trend, the committed demand from Asia for liquefied natural gas (LNG), and the energy demands of artificial intelligence.
Baker Hughes is eyeing an energy transition to begin decreasing its reliance on oil and gas. While the transition will take place over several decades, it will happen.
Baker Hughes is involved in carbon capture, hydrogen energy technologies, geothermal solutions, emissions reduction, and other clean energy segments of the marketplace.
It has also developed AI by BakerHughesC3.ai, a division focusing on using artificial intelligence and machine learning to increase efficiency, reduce downtime, and increase production.
The stock has been one of the leaders in the energy space this year and is up sharply as prices have formed over the past month.
Baker Hughes produces over $1 billion in cash flow, much of which returns to shareholders. Last quarter, the company increased the dividend by 11% and repurchased over $166 million worth of stock.
That is the type of fundamental excellence that attracts intense buying pressure.
We could also see extreme buying pressure in the shares if we continue to experience disruptions and conflicts in the Middle East that increase oil and gas prices.
You can buy the stock up to $40.
The news, as touted by the Instant Experts of the Internet, may look bleak, but the outlook for the market and companies with strong fundamental momentum remains very bright right now.