How can the rally keep going?

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Tomorrow, we will receive February’s producer price index due in the morning. It is the metric that measures wholesale inflation. Economists expect the headline PPI to rise by 0.3% for the month. That would be a decent progress in inflation. The market recently saw a sell-off in tech stocks. Just two companies in the Magnificent Seven group finished yesterday in the green. On the other hand, 7 of the 11 S&P sectors finished in the green. This may indicate that investors feel that tech stocks are reaching lofty valuations. But the fact that stocks still rose in the day despite the sell-off, so it may be a positive news for the current rally. - “The market has been able to withstand the lack of technology leadership and has broadened out. The Magnificent Seven story is over, thankfully,” said Jay Woods, the chief global strategist of Freedom Capital Markets. Believe it or not, the S&P 500 went 266 sessions without at least 2% drop. (Source: Bloomberg) So, the future rally may depend on companies’ ability to post strong earnings growth. Why? The speculation juice is running out, and Wall Street needs a new catalyst. - “If the S&P is going to have a strong second half of 2024, corporate earnings growth will need to accelerate,” said Nicholas Colas at DataTrek Research. This is especially for other sectors. Earnings for the S&P 500 jumped 7.4% in the fourth quarter year over year. But if we exclude the Magnificient Seven group, profits in the index actually fell by 1.7%. See how these Big Tech has been carrying the markets? So, it’ll be on other sectors to grow. How Does A Stock With A 20%+ Revenue Growth With Only 3% Market Penetration Sound To You? Today’s Stock Pick: Paylocity Holding ([PCTY]( Paylocity competes in a lucrative market with virtually unlimited market opportunities. First, what does Paylocity do? Its software focuses on human resource functions – such as payroll, scheduling, time tracking, and benefits management. That’s a good business to be in. Once you integrate software into an organization, it’s difficult to untangle it and use a competitor’s software. But the competition is fierce. ADP and Paychex operate in this market, and they’re “big dogs” in this industry. However, Paylocity is a younger company with solutions that is more aligned with modern workplaces. One of its products, Community, became an instant hit and drove an accelerated growth in Paylocity. Community is a “social media” of an organization, but that would be an apple to an orange. But let me give you an example. You can recognize other employees for random acts. Sandra The Saleswoman might pass along a lead to Adam, and it led to the sale. So, Adam can show her appreciation by recognizing Sandra The Saleswoman in the Community. Why is this important? John Wooden, a legendary basketball coach of UCLA who won 10 national championships in a 12-year period, taught his players to do this every time he scores a point. He should point his finger at the person who assisted him. Basketball is a team sport, and every player should be recognized for their contributions. One player asked John Wooden, “What if he wasn’t looking at me?” John Wooden replied, “He’s always watching.” Every human craves recognition and appreciation. In the past, there was no clear way for an organization to recognize another employee. Paylocity offers a unique way for employees to do it. Plus, human resources can even turn it into a game where employees can collect rewards. (Source: Paylocity) Plus, an HR team would send out a weekly or monthly newsletter in the past. Maybe it would do it through emails. But it feels less engaging. With Community, HRs are now doing videos and posts and reacting to comments from employees. CEOs are sharing their messages through Community, as well. It also comes with analytics – the HR team would know how many people have interacted with it. And of course, you can do a bunch of things with the app outside Community. Need to call in to request time off? You can do it in the app. Same with submitting expense reports, viewing your paychecks, reviewing your benefits, and so on. Sure enough, these products became an instant hit. Paylocity’s growing like weeds. Revenues grew consistently in the last four years. The most recent quarter saw a 25% YoY growth: (Source: Paylocity) Moreover, Paylocity was also named one of Fortune 100 fastest-growing companies as well as being named Inc.'s inaugural list of best-led companies for 2021. Attractive business model: Of course, Paylocity is a SaaS company with ridiculously-high margins and recurring revenues. More than 98% of total sales are recurring, and its retention rate is 92%. Virtually unlimited growth potential: Four decades ago, McDonald’s made the exploration of opportunity for new McDonald’s locations the principal theme in the 1985 annual report. Namely, it said that expansion options were endless. And it will not rule out making Big Macs in any place, including airplanes, department stores, and even space stations. In their words: - “The company currently is investigating the possibility of operating restaurants in several national and state parks. And we will continue to dream, to pursue opportunity wherever it leads us. Maybe—someday—McDonald’s will be found on aircraft carriers and commercial airliners. In sports stadiums and fine department stores. The sky’s the limit. And even that may not be true. Those folks doing a tour of duty on a space station a decade or two from now may want a taste of home. And, who knows, it might just be the familiar taste of a Big Mac.” The same thing is true with Paylocity. There are over 1.3 million businesses in its sweet spot of 10-5,000 employees segment in the market. Paylocity only penetrated less than 3% of this addressable market. So, the future expansion is endless. (Source: Paylocity) Plus, the largest percentage of its new clients came from ADP and Paychex. Its offerings are clearly superior and clients are willing to go through pains to make the change. This is good news. We don’t need to worry whether ADP and Paychex already dominated the market. Paylocity has proven its ability to take clients from them. (Source: Paylocity) Bottom line: Paylocity operates in one of the best software markets – human resources. ADP and Paychex generated sensational share returns in this market, but this is similar to Shopify taking certain merchants away from Amazon. Paylocity’s modernized products are taking clients from these legacy companies, and you saw the revenue growth. Yes, the stock is pricey at 56 trailing P/E. But its market cap ($8 billion) is four times smaller than Paychex ($39 billion). I believe wholeheartedly that this stock could be a winner, thanks to its small size and fast growth. [EARN WHILE YOU LEARN! JOIN OUR FREE LIVE TRADING SESSION!](       © All Rights Reserved, Trade Alliance [Unsubscribe]( | [Manage Preferences](