3 Stocks Working Through the Trouble

06/29/2011 11:30 am EST

Focus: STOCKS

John Reese

Founder and CEO, Validea.com And Validea Capital Management

The economy is continuing to push forward, but recent data shows that it's been an uphill climb in the past month or so. These three companies seem to have been spared the worst of the damage, writes John Reese of the Validea Hot List.

This struggle has been evident in the job market. The private sector added 83,000 jobs last month, according to the latest Labor Department report, which—while showing things are still heading in the right direction—was the lowest total in almost a year.

The so-called "U-6" measure of unemployment—which also includes discouraged workers who have stopped looking for a job—actually fell slightly, but remains high by historical standards, at 15.8%.

Manufacturing activity, meanwhile, continues to increase, though the rate of expansion slowed in May to the lowest level since September 2009, according to the Institute for Supply Management.

I wouldn't be too alarmed though—it was still the 22nd straight month ISM's manufacturing index indicated expansion in the sector. Also, the slowing of growth was as much a reflection of the past year-and-a-half's extremely impressive numbers as it was of there being a "soft patch" for manufacturing.

In fact, ISM's manufacturing index reached significantly lower levels at points during each of the past two economic expansions. (During the late 1990s economic expansion, the index actually indicated manufacturing activity contracted in several months.)

One area that remains a big concern: housing. The S&P/Case-Shiller index of home prices declined 4.2% in the first quarter (vs. the fourth quarter of 2010), new data showed (though the seasonally-adjusted decline was less than half that, 1.9%). The unadjusted data represented a new post-housing-boom low.

Pending home sales for April, meanwhile, fell 11.6% from March, according to the National Association of Realtors.

The housing market has struggled to gain traction since the first-time homebuyer tax-credit program expired. It's important that the market does stabilize and improve—not only for the sake of homeowners, but also for the sake of the financial firms that still hold significant amounts of mortgage-backed securities.

Another critical issue that's coming to a head is the end of the second round of the Federal Reserve's quantitative easing efforts. The Fed's money-printing binge has helped bolster markets and asset prices, and it remains to be seen how much the markets will gyrate when the program ends at the end of this month.

It's worth noting, however, that the end of QE2 should come as no surprise—the Fed has said for weeks that it will end as scheduled at the end of June—so markets should already be counting in much of the impact.

Here are three stocks I'm watching that should continue to do well through this period:

Dollar Tree (DLTR)
Based in Virginia, Dollar Tree's stores offer a wide variety of discount merchandise, ranging from food items to household goods to toys to lawn- and garden-related items.

It has a market cap of about $7.6 billion, and has taken in more than $6 billion in sales in the past year.

GT Solar International (SOLR)
Based in Merrimack, New Hampshire, GT has been in the solar power business for 17 years now, and is a leader in polysilicon production technology, and sapphire and silicon crystalline growth systems.

Its products might not ring a bell, but they are key technologies involved in solar cell and panel and LED production. The firm has taken in almost $900 million in sales in the past year.

Ancestry.com (ACOM)
This firm started as a publishing company nearly three decades ago, and has become the world's largest online resource for people researching family history.

As of March, it had more than 1.6 million paying subscribers, and has more than 6 billion historical records in its database. The firm has a $1.7 billion market cap, and has taken in about $327 million in sales in the past year.

Thanks in large part to its explosive growth in recent years, Ancestry.com gets solid scores from a couple of my growth-focused models.

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