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Stock Market Today: Small Caps Up Big; Which Stocks Will Follow Apple As New Turnaround? | Stock News & Stock Market Analysis

U.S. stocks continued to hold strong gains in late afternoon trading Thursday following a passage of a Republican-led overhaul of the tax code in the House of Representatives.

The Tax Cuts and Jobs Act, highlighted by a shrinking number of tax brackets and much lower corporate tax rates, looks poised for fierce debate within the Senate.

XAutoplay: On | OffThe Nasdaq composite led the way, rising 1.4% and trading near session highs. The S&P 500 and Dow Jones industrial average gained 0.9%. Small caps outperformed; the S&P SmallCap 600 stretched 1.7% higher.

Top-performing industry groups included data storage, up 5.8% with the help of NetApp (NTAP); home furnishings retail, up 8.8% thanks to RH (RH); and medical software, up more than 3%. Major discount retailer, semiconductor equipment, integrated computer systems and retail apparel and shoes stocks also shined, up more than 2% each.

Volume is running slightly higher on the Nasdaq vs. the same time Wednesday but is down on the NYSE.

Meanwhile, Cisco Systems (CSCO) showed unusual power, gapping up and advancing more than 6% to 36.30 and getting slightly extended from a 34.20 buy point in a nicely formed saucer with handle.

The networking and telecom equipment titan is now on track to staging a potential turnaround similar to what Apple (AAPL) has achieved over the past 12 months.

The new base that Cisco formed can be counted as early stage. For most stocks, early-stage bases carry higher odds of success after a breakout occurs.

Cisco is reaching price levels not seen since 2001 after reporting fiscal second-quarter results, positive guidance and new switches for the data center.

Cisco, the best growth stock in the 1990s, is likely seen today as a solid income play. Its annualized dividend yield of 3.4% is based on a quarterly cash payout of 29 cents a share and smokes the 1.9% yield of the S&P 500.

The question for growth-stock hunters will be whether Cisco can achieve a reacceleration in top- and bottom-line growth that has been exhibited by fellow megacap Apple.

Cisco reported flat earnings at 61 cents a share, but it does represent acceleration from a 3% dip in the July-ended fiscal fourth quarter. However, revenue fell 2% to $12.14 billion, extending a streak of shrinking sales to seven quarters.

Cisco currently receives relatively low ratings from IBD Stock Checkup, including a 68 for Composite Rating and a 53 for Relative Price Strength. That’s typical for a large-cap stock that forms long bases that last up to 12 months or more, and are trying to stage a fundamental turnaround.

In contrast, Apple has achieved acceleration in the top line for four straight quarters, going from a 9% drop in sales in the fourth quarter of fiscal 2016 to gains of 3%, 5%, 7% and 12% in the past four periods.

Earnings per share, in turn, have lifted from a 15% dive to increases of 2%, 11%, 18% and 24% for the iPhone marketer. Apple now sports high ratings compared with the start of the year; the Composite Rating, which combines IBD’s proprietary ratings with recent stock price action, has jumped to a solid 91 on a scale of 1 to 99.

The Street sees Apple’s profit for the fiscal year ending next September to accelerate, rising 24% to $11.44 a share; in fiscal 2017, profit rose 11% to $9.21 a share despite some reports on concerns regarding the speed of ramping up production of new iPhones.

Apple is now slightly extended after recently clearing a new cup with handle at 160.97. The 5% buy zone goes up to 169.02.

Apple is also up 45% after breaking out of a first-stage cup with handle at 118.12 on Jan. 6-9. That breakout was covered extensively in IBD’s Stock Market Today columns.

Other companies within the Dow Jones industrial average that have become excellent turnarounds over the past 12 months include Caterpillar (CAT) and money center play Bank of America (BAC).

Cat initially cleared a bottoming base pattern at 80.99 in the week ended July 15, 2016, moved up at a slow yet steady pace, then broke out again in big turnover during the week ended April 28 this year, this time clearing a well-formed flat base pattern at 99.56. Shares have since ramped up 37% from that recent entry.

Bank of America is trying to extend gains from a recent breakout from a second-stage saucer with handle at 25.45, 10 cents above the handle’s high of 25.35.

Outside the Dow 30 names, steel producers are trying to move higher too after bottoming out in 2016. Global giant Arcelor Mittal (MT), which has now posted six quarters in a row of healthy earnings, is testing support at the 10-week moving average after a recent breakout from a large cup with handle at 27.71.

Arcelor has jump-started its revenues as well, boosting the top line 1%, 20%, 17% and 21% vs. year-ago levels in the past four quarters. Full-year profit is expected to swing sharply up for a second year in a row, up, 64% to $3.47 a share this year, then cool 11% to $3.09 in 2018.

Meanwhile, the IBD 50 is a great place to find small-, mid- and large-cap firms showing double-digit or even triple-digit growth. Cisco rival Arista Networks (ANET) is just one example. The data center-focused maker of networking gear rose another 3% to 232.37, stretching gains from an August breakout from a narrow flat base at 163.07.

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