Since the last week of September, when many money-losing stocks sold off sharply, the stock market has become obsessed with superior fundamentals. Apparently, institutional money managers held many speculative stocks and were too embarrassed to show their clients what they owned at the end of the quarter.

Since then, the stock market has become very selective. Institutional money managers are aggressively seeking out those stocks that have released big earnings surprises, or have guided Wall Street analysts higher.

Due to the market's deteriorating breadth and power, all investors must be extremely diversified, since fewer stocks are doing most of the heavy lifting. I expect that the breath and power of the stock market will improve considerably as Thanksgiving approaches. Typically, the stock market stages a big year-end rally that begins around Thanksgiving.

This year-end rally is due to investors rushing to fund pensions funds before the end of the year. Small- and micro-cap stocks are often the biggest beneficiaries of the buying pressure that emerges during these year-end rallies.

I expect that the stock market will also be very strong in the beginning of the year because the fourth-quarter earnings results will mark a record for corporate profits. The big story next year is that the stock market will have reached record profits, but the indexes will still be significantly below their March 2000 highs. I expect that the Dow Industrials and probably the S&P 500 will make new highs next year, but the NASDAQ might have to wait a few years before it makes a new high.

Recently, the government reported that GDP grew by 7.2% for the third quarter. This was the strongest quarter for economic growth in nearly 20 years. There's a lot of talk concerning how the economy grew so strongly in the third quarter, and now it will start to cool off. This is somewhat true, because after consumer spending soared in July and August, it settled down in September. However, consumer spending typically soars as the holidays approach, so I expect that the economy will grow at least at a 4% annual pace in the fourth quarter.

One reason that I'm confident the economy will continue to grow at a fast pace is that business spending continues to surge. It was initially stimulated by the accelerated depreciation benefits in President Bush's economic stimulus package. In fact, I expect that many businesses will spend money before the end of year so they can take full advantage of the depreciation provisions in order to reduce their tax liability.

The Federal Reserve kept short-term interest rates at 45-year lows following their latest meeting in late-October. No matter what the Federal Reserve says, I don't believe that short-term interest rates will be raised until after next year's election. I continue to be amazed by the magnitude of the stimulus that has been provided by the Federal Reserve and the economic stimulus package.

The Federal Reserve's stimulus has already worked and boosted home values. This helps consumer confidence, since five out of six Americans have more money in their homes than in the stock market. The economic stimulus package is clearly working. Both consumer and business spending soared immediately after the package was passed. The next phase for the economy should be the creation of new jobs, which will add more consumers to the economy as payrolls expand.

Currently, industrial production is at a record high, and the weak U.S. dollar will help bolster the manufacturing sector. The service sector is already creating new jobs and will likely represent the key job-creation machine. The rapid productivity gains that the economy has experienced from layoffs and outsourcing will likely slow down. To boost earnings further, the economy must boost sales and create new jobs.

One of my favorite stocks with strong sales growth is Enterra Energy (NASDAQ: EENC). Enterra has posted over 266% sales growth during the past four quarters. In its latest quarter, the company drilled 19 wells, resulting in 17 oil wells (16 net) and one gas well (one net) for a success ratio of 94%.

Enterra is continuing to drill new wells and is constructing production facilities to handle the increased production from its expanding fields. As a result of the increased production, operating costs have reduced substantially, which will allow the company's operating margins to continue to expand. During the past four quarters, Enterra's earnings have surged 760%, and its operating margins have expanded from 19.6% to 26.2%.

As the company continues to benefit from the expansion of its fields, I expect that its operating margins will expand to 36% or higher and further boost its underlying earnings. Even more exciting, the company will hold a special shareholder meeting on November 24 to vote on the conversion of Enterra Energy into a new structure that will consist of a royalty trust unit for Canadian shareholders and a high-yield stock for U.S. shareholders. This is to take full advantage of both Canadian and U.S. tax laws.

Obviously, the company is generating a tremendous amount of free cash flow that it would like to share with its shareholders. I recommend shares of Enterra Energy as a great way to start to build a portfolio that will benefit from the post-Thanksgiving rally.

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