September 13, 2017
September is off to a bumpy start. The S&P 500 ended last week down about 0.25% for the month, and it's only tacked on an additional 1.5% this week. Historically, September is one of the weakest months of the year, and many investors may opt to wait for a seasonally strong time of year before jumping back into the stock market. That means, often times, when you look at stock performance, it isn't rosy during this period. But does that mean you should be cashing out your positions right now?
I advise strongly against this course of action. September is also historically a "window dressing" month for institutional fund managers. As we've discussed before, quarter-end window dressing is when institutional fund managers realign their portfolios, ditching the losers and picking up the best-performing and fundamentally superior stocks from the quarter. So this period (typically the final 10 days of September) ignites a flight to quality.
Instead of cashing out right now, the best way to prepare for September's seasonal doldrums is by realigning your portfolio for maximum performance at the end of this month. If you want to avoid many of the headaches that come with September trading, start by trimming the dead weight in your portfolio.
You can do this by checking your stocks in Portfolio Grader. When you run your holdings through this screening tool, take note of each stock's Quantitative Grade (the current level of institutional buying pressure) and each stock's Fundamental Grade (a weighted blend of eight financial metrics). Also check which of your stocks are rated as Conservative, Moderately Aggressive or Aggressive. Shoot to have 60% of your holdings in Conservative stocks, 30% in Moderately Aggressive and 10% in Aggressive.
I can't stress this last point enough because aggressive stocks will be the first ones to take a beating during a correction. That's why you want to limit your exposure to these "spicier" stocks. To get you started, here are 15 aggressively-rated stocks you'll want to steer clear of this month.
|SGRY||Surgery Partners, Inc.||F||D||F|
|DNR||Denbury Resources Inc.||F||D||F|
|ASNA||Ascena Retail Group, Inc.||F||F||F|
|OMED||OncoMed Pharmaceuticals, Inc.||F||C||F|
|BW||Babcock & Wilcox Enterprises Inc||F||D||F|
|GFA||Gafisa S.A. Sponsored ADR||F||D||F|
|RGLS||Regulus Therapeutics Inc.||F||C||F|
|PMTS||CPI Card Group, Inc.||F||C||F|
|PTI||Proteostasis Therapeutics, Inc.||F||D||F|
|SNDE||Sundance Energy Australia Limited Sponsored ADR||F||C||F|
|BBOX||Black Box Corporation||F||D||F|
Now, September may historically be a weak month of the year for the stock market, but in recent years, my Emerging Growth stocks have defied this seasonal weakness. That's because many of these Buy List stocks benefit from quarter-end window dressing, as well as the 90-day quarterly rebalancing of smart Beta and equally weighted ETFs. And I expect this September to be no different.
In fact, our current Emerging Growth stocks are characterized by 56.2% annual sales growth and 124.4% average annual earnings growth. On the other hand, earnings are decelerating for the S&P 500. The S&P 500 is now expected to post a mere 6.8% annual earnings growth in the third quarter, due largely to less favorable forecasted earnings for energy stocks and more difficult year-over-year comparisons. So, our Buy List stocks will be ripe for the picking in the upcoming weeks.
But if you aren't ready to join Emerging Growth right now, simply stay tuned into this blog in the days and weeks to come where I'll keep you up-to-date on my thoughts concerning the market.