April 10, 2014
I've literally just finished sending out Flash Alerts to each and every one of my newsletter members (if you subscribe to Blue Chip Growth, Emerging Growth or the like you may want to check your inbox) about today's dramatic pullback. But then I got to thinking: What I had to say to them today really applies to anyone who invests in the stock market. There's a lot of fear and misinformation out there, so I want to help clear the air for everyone, not just my paying subscribers. So in today's blog let's tackle what happened today and what I believe your best course of action is.
On the heels of yesterday's Fed-inspired optimism, today ushered in another round of the rash selling action that has plagued the markets for the past several weeks. All 10 sectors in the S&P 500 pulled back. The NASDAQ nosedived 3.1%, the largest such drop since November 2011. The tech-heavy index took a beating as some investors feared that stock valuations had risen too much.
But before you get swept up in the knee-jerk reaction, I want to be clear. Now is not the time for panic selling. Doing so could derail all of the hard work you've done in setting yourself up for the first-quarter earnings season.
After the strong rally that lasted through January, it's natural for some investors to take profits during the lull between earnings. And this normal profit-taking has been compounded by a lot of "bubble" talk. Many media pundits are throwing around the "B" word like it's going out of style because let's face it, fear sells better than greed. So lately the market has been wanted to retest its near-term lows.
However, as a numbers guy I can tell you that the charts and "data" the bears are throwing out there just don't hold water. Doug Kass' infamous chart that compared today's Dow to 1929 was based on a highly flawed analysis. And more recently there are rumblings of a bubble in biotech stocks, completely ignoring many of the stunning earnings announcements that are right around the bend. These reports are click-bait, pure and simply.
Yes, there is a rotation out of some momentum stocks into value plays. But I must stress the word some. This only applies to yesterday's high-fliers which aren't backed by strong sales and earnings. They're losing altitude quickly because when it comes time to report quarterly results, the gig will be up.
It's an entirely different story for the growth plays that do have the sales and earnings to support them. If you've followed this blog for some time, you'll know that I consider the A-rated and B-rated stocks in Portfolio Grader an excellent place to start in making sure your portfolio is in fighting form. And of course the next step up are the stocks that I've selected for my various newsletter services.
These stocks are hand-picked for their rock-solid financial statements and their good standing among institutional investors. I've looked at each stock's risk-to-return ratio and where it fits into the investing strategy. Even better, these stocks blow the market out of the water when it comes to forecast sales and earnings growth.
So when it comes time for earnings, the top-rated stocks are going to surge higher. Much higher. The momentum stocks that don't measure up will sink like rocks, but the best of the best won't have that problem. I'm very confident that the rotational correction we're seeing is now overdone and that the top slice of the market are poised for an impressive rebound. With so many folks throwing the baby out with the bathwater, this presents an excellent near-term buying opportunity if you're feeling opportunistic. I sure am.
So before I sign off, I want to leave you with this thought: When panic sellers start walking, let the earnings do the talking.
I'll be in touch first thing tomorrow with my Stock of the Day feature.