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The Best Stocks To Buy On A Sell-Off

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 CAP1/30/20204 Week MA
Company NameSymbolSectorSCORESCORE
BEST
Centene Corp(CNC)HEALTHCARE115113.75
Equifax Inc(EFX)FINANCIALS11096.25
Johnson & Johnson(JNJ)HEALTHCARE110108.75
Trinity Industries Inc(TRN)SERVICES110106.25
Quest Diagnostic(DGX)HEALTHCARE10577.5
DaVita Inc(DVA)HEALTHCARE105100
DexCom(DXCM)HEALTHCARE105102.5
Factset Research(FDS)TECHNOLOGY10585
Hormel Foods(HRL)CONSUMER GOODS10597.5
Henry Schein(HSIC)SERVICES10590
MID CAP1/30/20204 Week MA
Company NameSymbolSectorSCORESCORE
BEST
Wolverine World Wide(WWW)CONSUMER GOODS110111.25
Carter's Inc(CRI)CONSUMER GOODS105102.5
Dick's Sporting Goods(DKS)SERVICES105106.25
Phillips 66 Partners LP(PSXP)BASIC MATERIALS105105
Stifel Fin'l(SF)FINANCIALS105103.75
Acadia Healthcare(ACHC)HEALTHCARE100102.5
Amedisys Inc(AMED)HEALTHCARE100100
Barnes Group, Inc.(B)INDUSTRIAL GOODS10095
Choice Hotels International, Inc(CHH)SERVICES100101.25
Coupa Software(COUP)TECHNOLOGY100102.5
SMALL CAP1/30/20204 Week MA
Company NameSymbolSectorSCORESCORE
BEST
Gaiam Inc Cl A(GAIA)SERVICES110103.75
3D Systems(DDD)TECHNOLOGY10596.25
Global Net Lease Inc(GNL)REITS10582.5
MarineMax, Inc.(HZO)SERVICES10596.25
Providence Service(PRSC)HEALTHCARE105102.5
Shoe Carnival Inc.(SCVL)SERVICES105102.5
Brady Corp(BRC)SERVICES100103.75
Computer Programs & Sys(CPSI)HEALTHCARE100101.25
Charles River Assoc.(CRAI)SERVICES100100
Community Health Systems(CYH)HEALTHCARE10070

We also shared a list of buy-rated technology stocks with members that include these top targets to add to watch lists:

TECHNOLOGY

1/30/20204 Week MA
Company NameINDUSTRYSCORESCORE
ALL CAP
Factset ResearchINFORMATION & DELIVERY SERVICES10585
Open TextINTERNET SOFTWARE & SERVICES105105
ServiceNowINFORMATION TECHNOLOGY SERVICES105102.5
StoneCoAPPLICATION SOFTWARE105101.25
3D SystemsCOMPUTER PERIPHERALS10596.25
OktaBUSINESS SOFTWARE & SERVICES10086.25
Atlassian Corp. plc.INFORMATION TECHNOLOGY SERVICES10086.25
BroadcomSEMICONDUCTOR- INTEGRATED CIRCUITS10085
ProofpointAPPLICATION SOFTWARE10081.25
Qualys, IncAPPLICATION SOFTWARE10081.25
Salesforce.comINTERNET SOFTWARE & SERVICES100100
Lumentum HoldingsSEMICONDUCTOR- INTEGRATED CIRCUITS10095
MongoDBAPPLICATION SOFTWARE10092.5
Advanced Data ProcessingBUSINESS SOFTWARE & SERVICES10086.25
IntelSEMICONDUCTOR- BROAD LINE10098.75
Kulicke & SoffaSEMICONDUCTOR EQUIPMENT & MATERIALS10097.5
Intuit Inc.APPLICATION SOFTWARE10087.5
TeradyneSEMICONDUCTOR EQUIPMENT & MATERIALS10098.75
Adobe SystemsAPPLICATION SOFTWARE100100
AutoDesk IncTECHNICAL & SYSTEM SOFTWARE100100
Coupa SoftwareINTERNET SOFTWARE & SERVICES100102.5
Globant S.A.INFORMATION TECHNOLOGY SERVICES10097.5
HubSpotAPPLICATION SOFTWARE10093.75
Manhattan AssocAPPLICATION SOFTWARE10093.75
Mettler Toledo Inc.SCIENTIFIC & TECHNICAL INSTRUMENTS10098.75
Akamai TechINTERNET SOFTWARE & SERVICES10097.5
FiservBUSINESS SOFTWARE & SERVICES100103.75
Five9APPLICATION SOFTWARE100103.75
j2 Global CommunicationsINTERNET SOFTWARE & SERVICES10097.5

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