2014: Year of the Stock Picker

Individual company performance will become increasingly important over the next several quarters, as correlation among the S&P 500 components has declined to its lowest level since 2008.

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Whether looking at the daily data above, or the 3-month rolling chart highlighted by technical analyst Chris Verrone in today's Strategas Research morning note, we see a distinct decline in the degree to which stocks trade together.

The Federal has provided a powerful tailwind to the market, keeping rates "exceptionally low" and providing $85 billion of monthly buying for added measure. As the Fed begins to taper its largesse, we believe stronger companies will outperform those whose stocks had simply risen with the tide.

This implies a renewed emphasis on picking exceptional companies. So today we screen the S&P 1500 based on two criteria: Growth, and more growth.

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Only 16 companies of 1,500 made the cut. They are: Acuity Brands (AYI ), Affymetrix (AFFX ), Anadarko Petroleum (APC ), Bank of America (BAC ), Basic Energy Services (BAS ), Celgene (CELG ), E*Trade Financial (ETFC ), Janus Capital (JNS ), Legg Mason (LM ), Marathon Petroleum (MPC ), Micron Technology (MU ), Red Hat Inc. (RHAT ), Charles Schwab (SCHW ), Transocean Ltd. (RIG ), Valero Energy (VLO ) and Waddell & Reed (WDR ).

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As for why we care...

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Seven companies narrowly missed our 20 percent earnings growth threshold, growing 17-to-19 percent based on estimates. There are some compelling stories here, so we include them for the benefit of blog readers: Affiliated Managers (AMG ), Freeport-McMoran (FCX ), Invesco Ltd. (IVZ ), Skyworks Solutions (SWKS ), SM Energy (SM ), Southwest Airlines (LUV ) and Wendy's (WEN ).

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