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At 8:30am Friday morning I was tuned into CNBC to see the release of the January Employment Situation report. Most of the experts on the show predicted that the number of new jobs created would top the 145,000 estimate. Then everyone’s jaws hit the floor when it turned out that we only gained 36,000 jobs. And just as amazing, the unemployment rate somehow plummeted to 9%.

How is this even possible? Plain and simple, the government’s methodology is flawed and you should disregard it just like the investment community disregarded it Friday on the way to another new high.

Note, that I am not saying that the US employment picture is thriving by any means. I am just stating that the employment picture is getting better and the government’s employment survey does not properly account for these gains as well as other methods.

The jobs picture is the final piece of the recovery puzzle. As that stays on the improvement track it means there is more income in the hands of consumers which begets more spending which begets higher corporate profits which begets higher share prices.

Hopefully you have been reading these tea leaves right all along and enjoying the gains.And most signs say there should be more gains as the year progresses. However, I have this nagging suspicion that the rally might stall out for a little spell.

Why? Because there is barely any economic data of value for a while. Plus we have come a long way in a short period …and you have to rest sometime. Plus bond rates are starting to take off again and some might start to get concerned about negative ramifications for the economy. Plus Egypt. Plus Europe. Plus. Plus. Plus.

So am I saying we will have a meaningful correction? Nope. I don’t see that either. I just see us treading water for a while in a narrow 2-3% range. And that would be the healthy thing to do right now.

Treading water is not a reason to take profits or have cash on the sidelines. It means that we should hold onto our good stocks through this period so whenever the market is ready to rise we are there to enjoy the benefits. So that is what I will do…hope you do the same.

Take 5

This is where I share 5 of my favorite stocks that all have a coveted Zacks Rank of 1 (Strong Buys)

  1. Apple (NASDAQ:AAPL): Another blockbuster earnings surprise led to another massive rise in estimates. When you back out the cash per share, Apple is trading for just a PE of 12. That is a grave injustice that will be rectified in time.
  2. Carbo Ceramics (NYSE:CRR): With oil prices on the rise there has also been a major increase in exploration spending. Carbo is seeing explosive growth in demand that can clearly be seen from their recent earnings beat. Most signs point to more to come.
  3. Cirrus Logic (NASDAQ:CRUS): This earnings season proved that the technology sector is alive and well. With that semiconductors are thriving. And niche players like Cirrus are seeing tremendous demand. Sure shares are up recently, but with their earnings momentum story intact, there is certainly more upside.
  4. MKS Instruments (NASDAQ:MKSI): Just like CRUS above, this testing equipment maker is also riding the waves of tech industry growth. The twist in this story is how they “out of nowhere” decided to start giving investors a dividend of 2%. Tack that onto the earnings story and you can see why shares are headed higher.
  5. Robbins & Myers (NYSE:RBN): The healthiest part of the US economy is clearly the industrial space. Many attractive investment choices there, but few better than RBN. Big earnings beat this quarter woke up many investors to this lesser known firm that, amazingly, has no debt (very, very rare for an industrial company). Estimates are on the rise with $50 in its sites for later this year.

Disclosure: I am long AAPL, MKSI, RBN.

Source: Stocks Ready to Tread Water? Today's 5 Picks