2 Opposing Stocks to Maximize Profits in the Bull Market
Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The stock market has taken a recent dip, but we are still very much in an expansionary period. If you're like me, maybe you were a little too wary during the first two quarters of the year and didn't take the risks you should have.
But there are still tons of great strategies to beat the indices, especially given the discounted stock prices of late. Bond yields are surging, and some investors are concerned that the Fed may curb growth. But this fear looks to be more or less unsubstantiated. Even if it's not, we can still take some calculated risks in order to profit while everyone else sits on their hands.
The two stocks listed here in conjunction only have a 0.55 correlation to the S&P 500 index, and a -.26 correlation to the Barclays US 7-10 Year Treasury Bond Index. This way if either market takes a turn for the worse, this dynamic duo won't suffer nearly as much as other combinations.
The First Component
Halliburton (NYSE: HAL) is an energy provider with mediums ranging from exploration to natural gas production. The fracking innovator is taking steps to amp up revenue from natural gas, an industry poised to explode in the coming years.
At first glance, the company's growth might look stagnant, with flat Q1 revenue at $7 billion. Fracturing, or "fracking," services dropped 15% in price last year as well. But newer technology and cheaper inputs will help lower costs and help the company's profitability in the coming quarters.
Earnings growth is expected to come in at 6.46% for the year, while forecasted growth for Haliburton in 2014 is 25.88%. This, coupled with a low price to earnings growth ratio of 0.90, makes Haliburton a solid investment not only for a short-term boost, but the long-haul as well.
The Perfect Complement
With the Consumer Confidence Survey up 7.1 points in June, a sub-8% unemployment rate, and bond yields surging, it's a great time to get bold with consumer discretionary stocks. The demand for airline travel is increasing, and airline companies are becoming more proactive in their utilization rates and efficiency.
The result is boding well for companies like Delta Air Lines (NYSE: DAL). Delta is one of the few companies with significant catalysts for the coming year. The firm that merged with Northwest Airlines in 2008 is getting rid of their Memphis hub and expanding to provide air-travel to Brazil and abroad. This, coupled with Delta Air Line's low PEG of 0.76, helps us overlook the company's currently poor profit margin of 0.08%.
Delta's current P/E sits at 18 and the forecasted YOY growth rate for next quarter's revenue comes in at a whopping 35.9%.
A Dynamic Duo
Both of these companies are intertwined with the bull market and will outperform if economic conditions continue to improve. Luckily, however, the two firms are not correlated in price if conditions take a turn for the worst. The correlation of the two firms' monthly returns are a meager 0.09, which makes this dynamic duo a unique approach to hedging while maximizing profit in a bull market.
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Ryan Gilbert has no position in any stocks mentioned. The Motley Fool recommends Halliburton. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!