The Best Stocks To Buy – ‘Is It Over?’ Edition

Last week, I wrote “it’s time to take a step back, breathe deep, and objectively identify money-making opportunities,” and I reminded investors that “if you were in cash during the top 10 best days in the stock market over the past 20 years, then your overall return is half what it would’ve been otherwise, according to JPMorgan.”

This week, stocks rallied off a margin-call inspired low following changes to margin requirements at many brokers late last week, monetary and legislative intervention, and hopes for global “helicopter-money” style support. The shift in overnight risk from being long to being short has been palpable, prompting the question: Is the stock market rout over?

While successfully holding 2018’s low is encouraging (see following chart), bottoms usually don’t produce “V-shaped” rallies to new highs. Instead, they include fits and starts, exposing investors to the risk of whipsawing portfolio values.

Data by YCharts

Given the economic data ahead is likely to be brutal, quarter-end statements are likely to be scary, and there’s still Covid-19 headline risk, selective stock picking and prudent risk management are critical in the coming weeks.

Instead of chasing returns and succumbing to portfolio churn, concentrating on the best sectors, industries, and individual businesses is best. Furthermore, patiently timing entries from here and avoiding margin until there’s more clarity to avoid forced liquidation remains wise.

The best sectors now

Top stocks within the best sectors often enjoy tailwinds that can boost performance, so paying attention to shifting sector leadership can pay off. For this reason, we use a scoring system that ranks sectors by market cap every week.

We explain our approach more here, but in short, we assign a score to over 1,500 widely-traded stocks using a 7-factor methodology, then we aggregate individual stock scores by sector and industry to rank them.

The seven factors are:

  • 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.

Currently, the best large-cap sectors are healthcare, industrials, consumer goods, and services. The top mid-cap sectors are services, technology, consumer goods, industrials, and healthcare. And the best small-cap sectors are services, consumer goods, industrials, and REITs.

Fishing in these ponds for top stocks should increase the odds of finding winners.

Source: Top Stocks For Tomorrow.

The best stocks to buy

Instead of heroically trying to pick individual stock price bottoms arbitrarily, our approach helps investors manage risk/reward by focusing on top stocks when the odds of winning are high.

This thinking is supported by the fact that stocks historically follow earnings over time, insiders only buy for one reason; money flow reflects institutional optimism or pessimism, and seasonal patterns often rhyme.

Currently, the number of top stocks we’re recommending in our marketplace service is limited as we wait for conviction, but these are the best scoring stocks, by market cap, that are worth adding to your watch lists.

LG CAP 3/19/2020 4 Week MA
Company Name Symbol Sector INDUSTRY SCORE SCORE
BEST
The Clorox Company (CLX) CONSUMER GOODS HOUSEHOLD & PERSONAL PRODUCTS 100 103.75
Molina Healthcare, Inc. (MOH) HEALTHCARE HEALTHCARE PLANS 100 86.25
Masimo Corporation (MASI) HEALTHCARE MEDICAL INSTRUMENTS & SUPPLIES 95 92.5
Regeneron Pharmaceuticals, Inc. (REGN) HEALTHCARE BIOTECHNOLOGY 95 98.75
Eli Lilly and Company (LLY) HEALTHCARE DRUG MANUFACTURERS-GENERAL 90 91.25
Centene Corporation (CNC) HEALTHCARE HEALTHCARE PLANS 85 88.75
Digital Realty Trust, Inc. (DLR.PK) REITS REITS 85 70
Domino’s Pizza, Inc. (DPZ) SERVICES RESTAURANTS 85 87.5
QIAGEN N.V. (QGEN) HEALTHCARE DIAGNOSTICS & RESEARCH 85 75
Cabot Oil & Gas Corporation (COG) ENERGY OIL & GAS E&P 80 62.5
MID CAP 3/19/2020 4 Week MA
Company Name Symbol Sector INDUSTRY SCORE SCORE
BEST
Teladoc Health, Inc. (TDOC) HEALTHCARE HEALTH INFORMATION SERVICES 85 88.75
Clarivate Analytics (CCC) TECHNOLOGY INFORMATION TECHNOLOGY SERVICES 80 81.25
Safehold Inc. (SAFE) REITS REIT-DIVERSIFIED 80 80
Virtu Financial, Inc. (VIRT) FINANCIALS CAPITAL MARKETS 80 78.75
The Cheesecake Factory Incorporated (CAKE) SERVICES RESTAURANTS 75 77.5
DICK’S Sporting Goods, Inc. (DKS) SERVICES SPECIALTY RETAIL 75 76.25
Deluxe Corporation (DLX) SERVICES ADVERTISING AGENCIES 75 75
Emergent BioSolutions Inc. (EBS) HEALTHCARE BIOTECHNOLOGY 75 65
Legg Mason, Inc. (LM) FINANCIALS ASSET MANAGEMENT 75 76.25
SM CAP 3/19/2020 4 Week MA
Company Name Symbol Sector INDUSTRY SCORE SCORE
BEST
2U, Inc. (TWOU) SERVICES EDUCATION & TRAINING SERVICES 95 87.5
ChemoCentryx, Inc. (CCXI) HEALTHCARE BIOTECHNOLOGY 90 90
Abercrombie & Fitch Co. (ANF) SERVICES APPAREL RETAIL 75 75
NanoViricides, Inc. (NNVC) HEALTHCARE BIOTECHNOLOGY 75 77.5
Sturm, Ruger & Company, Inc. (RGR) INDUSTRIALS AEROSPACE & DEFENSE 75 85
Verastem, Inc. (VSTM) HEALTHCARE BIOTECHNOLOGY 75 77.5


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Disclosure: I am/we are long TDOC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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