As we move through the week, the growth/value rotation I’ve been talking about is still very much in play.

The Russell 2000 index of small-cap and value stocks is at a 16% gain for the month, even putting in a new all-time high. But the NASDAQ, still with a stellar 9% month-to-date performance… is lagging the Russell significantly. Why?

Spurred by a double whammy of vaccine news, investors have suddenly decided that hot growth areas like tech are yesterday’s news… and small-cap and value stocks are where it’s at.

But before you get too excited about American Airlines and Exxon Mobil, I have to burst your bubble. These “value” stocks, however popular they now are, fall way short on fundamentals. Many of them have weak-at-best sales and earnings growth, low profitability, and questionable future prospects.

In other words, they’re a value trap.

That’s why some of my colleagues call this a “crap” rally – where stocks like energy, financials, and REITs are catching major bids despite no major changes in reported earnings prospects.

The stock market is, traditionally, a forward-looking mechanism. If these companies aren’t on track toward future profitability, there’s simply no good reason this rally should continue.

But because of news on the vaccine front, suddenly investors are behaving like we’ll be back on flights, going to movie theaters, and shopping at the mall before the end of the year.

I’m here to say that as forward-looking as the stock market is, that might be a little too optimistic.

While I am very much bullish on the stock market, I like to focus my investment on where I think the big money is going. But even more than that, I’m mainly interested when they move into quality.

And right now, there’s only one sector rising right now that has the goods to back it up.

The Only Quality Sector of This Rally

The one sector that’s attracting big money – that actually deserves it, in my opinion – is semiconductors.

When I look at my unbeatable stock-picking system’s data, I find a lot to like about semis.

Out of the thousands of stocks I look at, there are about 32 semiconductor stocks that are liquid enough for big-money accounts to easily trade. And those 32 stocks score highly on my 1- to 100-point grading system.

For the fundamental portion of the grade – which considers things like sales, earnings, and profits – semiconductors score an average of nearly 60%. Compare that with all 1,400 stocks that the big money can easily get in and out of: they score 52%.

That means that right now, just a relative handful of semiconductor stocks rate higher than the entire big-money stock universe.

To really drive the point home, let’s take a closer look at the sector everyone’s so hot on right now: small caps.

If I look at the fundamental score of all small caps, excluding semiconductors, I get 3,219 stocks with an average fundamental score of 32%.

So once again, just 32 semiconductor stocks beat 3,219 non-semiconductor small caps nearly 2-to-1 on fundamentals.

Focus on What’s Actually Working

Even though investors are flocking into value traps, big money is still flowing into one section of the market with strong fundamentals and bright long-term prospects.

There’s no denying that semiconductors are a great place to put your money right now. They underpin the entire world of tech companies. Without strong semiconductor development, all the advances we hear about elsewhere wouldn’t be possible.

If you’re looking to fade the value trade and get exposure to a well-justified rally with plenty of room to run, you have to be in semiconductors.

Those looking to gain broad exposure to semis should buy either the VanEck Vectors Semiconductor ETF (SMH) or the iShares PHLX Semiconductor ETF (SOXX). Both are a great way to buy into a sector that’s holding up well in the ongoing value rotation.

When the market runs higher, it makes sense to hop on board. A hundred years of stock market gains are proof of that.

But always keep your eyes on the long game… and don’t be fooled into buying value when those companies face an uncertain path forward.

Patience and process!

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Jason Bodner
Editor, Palm Beach Insider

P.S. Tech is here to stay. There’s no getting around its importance or longevity.

That’s why we hold several cutting-edge tech stocks in Palm Beach Trader, like Nvidia (NVDA), SolarEdge (SEDG), and Paycom (PAYC), all of which have so far delivered triple-digit gains for my subscribers.

Gains like these don’t surprise me… Because my unbeatable stock-picking system has a strong track record of spotting the winners of tomorrow – long before anyone in the mainstream does.

To learn more about my system and how it zeroes in on the absolute best stocks to own – no matter the market environment – just click here.