| Homepage / Portfolio / Special Reports September Surprise Helps Us Wrap Up a Good Quarter With just two trading days left in the third quarter, we’re moving closer to what sure looks to be a big lift to close out 2024 – both in the overall market and our TradeSmith Investment Report stocks. That’s obviously exciting in and of itself, but it’s even better when we go into a rally already in a great position. September has been better than usual, and in fact, the S&P 500 hit another record high today. This helps us wrap up the third quarter with more than 80% of our stocks in the green. The average return at the moment is 29%, with five times as many winners as losers – and those winners average 36% gains. Our biggest winners of the quarter are our two homebuilders, D.R. Horton (DHI) and PulteGroup (PHM), which rallied 33.8% and 27.1 % respectively as investors positioned themselves for lower interest rates. The Federal Reserve may have just officially cut rates last week, but some of the market is way ahead of the central bank. Mortgage rates peaked nearly one year ago, around 7.8% (30-year fixed), but have fallen to nearly 6% as of today. 
Lower rates combined with a housing shortage put homebuilders in excellent position, and DHI and PHM score the highest in my system. In addition, DHI and PHM pay dividends. Highly-rated dividend-paying stocks receive an additional tailwind as interest rates fall. Mortgages fell ahead of the Fed cut, but money market and cash accounts have continued yielding around 5%. Not anymore. That half-a-percentage point cut by the Fed may not sound like much, but it equates to 10% less yield on cash accounts. And more cuts are coming. If the Fed were to cut another 50 basis points by the end of the year, these investors would see yields slashed by 20%. This is critical for two reasons. A sizable chunk of the record amount of cash in these accounts – $6.3 trillion in money markets alone – will start flowing back into stocks. And not surprisingly, dividend-paying stocks will get a ton of attention. Especially growth stocks that pay dividends, which plays right into our hands. We seek growth more than dividends, but a lot of times we get both. My colleague Luke Downey ran one of his studies to find the best dividend growth stocks, and six of our current stocks are on the list. Here they are with dividend growth the last five years: - S&P Global (SPGI): 64.3%
- Old Dominion Freight Line (ODFL): 359.4%
- R. Horton (DHI): 100%
- KLA Corp. (KLAC): 93.3%
- PulteGroup (PHM): 81.8%
- Novo Nordisk (NVO): 135.2%
That doesn’t mean they all have high yields. In fact, most are not that big. But the highest yield is NVO at 1.1%. It’s less about the payout and more that they are strong, growing businesses consistently growing their dividends. Not coincidentally, they tend to have strong technicals, fundamentals, and Big Money inflows, as well. All told, 14 of our 24 stocks pay dividends. Again, we don’t seek them, but they frequently come with the territory when investing in the highest-ranking stocks. And with interest rates falling, they become an even bigger factor. Speaking of dividend-paying companies… Accenture Pops on Earnings Beat Accenture (ACN) popped 5.6% today after beating expectations in its latest earnings report released early this morning. The technology services company earned $2.79 a share, a penny ahead of estimates. Sales increased to $16.41 billion, also ahead of estimates for $16.37 billion. Earnings and sales grew 3% over last year, but bookings jumped 21% to $20.1 billion, which bodes well for the future. AI bookings hit $1 billion in the quarter and $3 billion for the full year. Guidance was mixed. Management forecasts sales this quarter between $16.85 and $17.45 billion. The midpoint of $17.15 billion is ahead of Wall Street’s current expectations for $16.94 billion. Full-year earnings guidance, with the midpoint of $12.73 per share, fell below estimates for $12.82, though the top end of the range at $12.91 per share would exceed forecasts. Topping it all off, the board approved a couple of things that boost shareholder value, including an additional $4 billion in stock repurchases. The company raised its dividend by 15%, boosting the yield to 1.7%. Quality companies that pay dividends will become more attractive as interest rates fall and yields on cash accounts drop. In addition, companies that raise dividends also tend to do well because it signifies financial strength and growth. 
ACN has had a volatile year, running more than 30% in the Big Lift that began last fall, giving all of that back, and then rallying 26% off its June lows. We’re up 8% overall, and we’ve held because I expected higher prices based on the company’s excellent history and its leadership in cloud computing, digital technology, security services, and now AI. That’s what we’re seeing. If you don’t own it, ACN is a buy if it dips below our $343.50 limit. With the recent strength, we’re reinstating our Risk Point, which currently stands at $304.64 based on our entry date and the stock’s Volatility Quotient of 20.6%. Chip Stocks On the Move We have multiple semiconductor stocks in our portfolio, which sounds like a lot, but that’s on purpose. The data shows them to be among the strongest stocks in the market. Semiconductors are the building blocks of the ongoing technology revolution. And not all semi stocks are the same. All six of our chip stocks are up nicely today after Micron Technology (MU) posted a nice earnings beat last night and issued strong guidance. AI-driven demand for data center chips increased revenue by nearly 100%. Semiconductor stocks were on fire much of the last 12 months before pulling back sharply in July as investors took profits and rotated into smaller stocks, but they are moving again. The VanEck Semiconductor ETF (SMH… that’s the symbol, not “shaking my head”) has bounced 17.5% since its recent low on Sept. 6. Our stocks have gone along for the ride in that same timeframe: - Advanced Micro Devices (AMD): 24.7%
- Applied Materials (AMAT): 20.1%
- Monolithic Power Systems (MPWR): 17.4%
- KLA Corp. (KLAC): 14.5%
- ASML Holdings (ASML):13.2%
- Synopsys (SNPS): 11.1%
We’ll monitor upcoming earnings reports that will start next month, but the long-term trend is positive, and we’ll continue to own the strongest chip companies in the market. 
That’s a great portfolio, and the data overwhelmingly points to it growing even bigger as we get through October and the election and roar into the end of the year. It doesn’t count new opportunities either, which we know are coming. In fact, I expect we’ll be adding another stock next week in our October issue. Talk soon,  Jason Bodner
Editor, TradeSmith Investment Report | 
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