Small Cap Stocks May Be Challenged, Says Cortes

Have you noticed a disconnect between bearish economic data and earnings which have been decent to good?

Steve Cortes of Veracruz sure has. He says macro economic data has been very bad “particularly employment and capacity utilization.”

But at least some profit reports have been pretty impressive - just look at Apple and Intel .

So how are companies turning good numbers against a backdrop of a weak economy?

”I think the answer is that US companies are exporting,” he says. In other words, he thinks there's strength overseas.

What’s the trade?

Because small caps generate almost all of their business domesitcally they seem likely to  underperform, Cortes says. Retail investors should focus only on big mega-cap international names , not domestic small caps.

Look at Philip Morris, McDonald’s and Caterpillar, he says.

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Trader disclosure: On July 20, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders: Terranova owns (EMC), (CREE), (CRCM), (LRCX), (COP), (AXP), (BMO), (CSX), (PEP), (CVS), (GS), (PCP), (C), (APA), (FCX), (JOYG), (MMM), (MOS), (GLD), (UAUA), (WYNN), (GOOG), (BBY), (SU), (KOL); Kelly owns (BP) puts; Kelly is short (GS); Cortes is short the US$; Cortes is short the S&P 500; Cortes is long Crude Oil; Cortes owns (GS); Cortes is short (BAC); Grasso owns (ASTM), (ABK), (BAC), (BA), (BGP), (C), (CSCO), (DYN), (JPM), (LPX), (MO), (NDAQ), (PFE), (PRST); Finerman owns (AAPL); Finerman’s firm owns (BAC); Finerman owns (C); Finerman owns (BAC) & (BAC) preferred; Finerman owns (JPM); Finerman’s firm owns (JPM); Finerman’s firm owns (MCD); Finerman’s firm owns (WMT); Pete Najarian owns (AAPL) call spreads; Pete Najarian owns (C) call spreads; Pete Najarian owns (GS) call spreads; Pete Najarian owns (LOW) call spreads; Pete Najarian owns (TCK) call spreads; Pete Najarian owns (PFG) call spreads; Pete Najarian owns (TEVA) call spreads; Pete Najarian owns (CNI) call spreads; Pete Najarian owns (GNW) call spreads; Pete Najarian owns (V) call spreads

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