Tailwinds due to seasonal tendencies finally abated this week.
Last week, I mentioned the blame for a sell-off could fall at the feet of the coronavirus, or an impeachment surprise, or trade worry. It appears the dubious winner of that contest is the coronavirus.
We shouldn't ignore the potential negative economic impacts associated with curbing coronavirus in Asia, particularly since economic contagion could further threaten an already struggling U.S. ISM Purchasing Managers Index (PMI), which clocked in at 47.2 in December, the lowest level since June 2009. However, sell-offs are usually more about mean reversion than any one particular bogeyman; and the market has given us plenty of reason to plan for a retracement given the S&P 500's meteoric rise since last fall.
The ideal time to raise cash was during the run-up, though, not now. That's why I wrote on January 19th to:
1. Reduce margin
2. Use market strength to sell stocks where your thesis is broken
3. Stick with leading sectors and industries
4. Focus on stocks with fundamental underpinnings
From here, it's more likely we'll be shopping for bargain-bin buys than finding great opportunities to sell second-tier stocks we're no longer interested in owning. There is no bell that rings an "all clear" signal, but I'll be watching the percentage of stocks in our 1,400-stock universe that are trading more than 5% above their 200-day moving average for clues. Last week, 55% of our universe was above that mark - a percentage only witnessed once since 2013, at the peak in February 2018. This week, the measure dropped to 45%, and if we get below 30%, then I think the odds would favor buying.
Admittedly, we're nowhere near that level yet, but sell-offs can drive prices down fast, and an actionable buy point within the next two weeks wouldn't surprise me.
If I'm right, then this is the perfect time to compile your wish list of best in breed stocks within strong sectors and industries, preparing you to buy on down days.
The Best Sectors To Buy
Weekly, we use our scoring system to rank widely-traded stocks. The factors used to rank stocks include forward earnings growth expectations, historical trends in reporting earnings that beat Wall Street estimates, insider buying, short-term and long-term institutional money flow, forward valuation relative to historical valuation, contra-trend short interest analysis, and quarterly seasonality over the past decade.
Then, we aggregate those individual scores by sector to find the best sectors to over- and under-weight in portfolios.
Currently, the best large-cap sector is industrial goods, while technology is top-ranked in mid-cap and small-cap.
The Top-scoring Stocks To Buy Now
The highest-scoring stocks offer the best opportunity for upside because stocks historically follow earnings over time, insiders only buy for one reason; money flow reflects institutional optimism or pessimism, and seasonal patterns often rhyme.
We shared with our members over 100 stocks with buy-rated scores this week, but these are the top ten by market cap.
|LG CAP||1/30/2020||4 Week MA|
|Johnson & Johnson||(JNJ)||HEALTHCARE||110||108.75|
|Trinity Industries Inc||(TRN)||SERVICES||110||106.25|
|Hormel Foods||(HRL)||CONSUMER GOODS||105||97.5|
|MID CAP||1/30/2020||4 Week MA|
|Wolverine World Wide||(WWW)||CONSUMER GOODS||110||111.25|
|Carter's Inc||(CRI)||CONSUMER GOODS||105||102.5|
|Dick's Sporting Goods||(DKS)||SERVICES||105||106.25|
|Phillips 66 Partners LP||(PSXP)||BASIC MATERIALS||105||105|
|Barnes Group, Inc.||(B)||INDUSTRIAL GOODS||100||95|
|Choice Hotels International, Inc||(CHH)||SERVICES||100||101.25|
|SMALL CAP||1/30/2020||4 Week MA|
|Gaiam Inc Cl A||(GAIA)||SERVICES||110||103.75|
|Global Net Lease Inc||(GNL)||REITS||105||82.5|
|Shoe Carnival Inc.||(SCVL)||SERVICES||105||102.5|
|Computer Programs & Sys||(CPSI)||HEALTHCARE||100||101.25|
|Charles River Assoc.||(CRAI)||SERVICES||100||100|
|Community Health Systems||(CYH)||HEALTHCARE||100||70|
We also shared a list of buy-rated technology stocks with members that include these top targets to add to watch lists:
|1/30/2020||4 Week MA|
|Factset Research||INFORMATION & DELIVERY SERVICES||105||85|
|Open Text||INTERNET SOFTWARE & SERVICES||105||105|
|ServiceNow||INFORMATION TECHNOLOGY SERVICES||105||102.5|
|3D Systems||COMPUTER PERIPHERALS||105||96.25|
|Okta||BUSINESS SOFTWARE & SERVICES||100||86.25|
|Atlassian Corp. plc.||INFORMATION TECHNOLOGY SERVICES||100||86.25|
|Broadcom||SEMICONDUCTOR- INTEGRATED CIRCUITS||100||85|
|Qualys, Inc||APPLICATION SOFTWARE||100||81.25|
|Salesforce.com||INTERNET SOFTWARE & SERVICES||100||100|
|Lumentum Holdings||SEMICONDUCTOR- INTEGRATED CIRCUITS||100||95|
|Advanced Data Processing||BUSINESS SOFTWARE & SERVICES||100||86.25|
|Intel||SEMICONDUCTOR- BROAD LINE||100||98.75|
|Kulicke & Soffa||SEMICONDUCTOR EQUIPMENT & MATERIALS||100||97.5|
|Intuit Inc.||APPLICATION SOFTWARE||100||87.5|
|Teradyne||SEMICONDUCTOR EQUIPMENT & MATERIALS||100||98.75|
|Adobe Systems||APPLICATION SOFTWARE||100||100|
|AutoDesk Inc||TECHNICAL & SYSTEM SOFTWARE||100||100|
|Coupa Software||INTERNET SOFTWARE & SERVICES||100||102.5|
|Globant S.A.||INFORMATION TECHNOLOGY SERVICES||100||97.5|
|Manhattan Assoc||APPLICATION SOFTWARE||100||93.75|
|Mettler Toledo Inc.||SCIENTIFIC & TECHNICAL INSTRUMENTS||100||98.75|
|Akamai Tech||INTERNET SOFTWARE & SERVICES||100||97.5|
|Fiserv||BUSINESS SOFTWARE & SERVICES||100||103.75|
|j2 Global Communications||INTERNET SOFTWARE & SERVICES||100||97.5|