Signs of a Healthy Pullback for Stocks

The question everyone wants answered: Are we safe to buy stocks?

The current decline of 3.3 percent year-to-date has provided a wake-up call to bulls who believed last year's rally would continue uninterrupted. In fact though, pullbacks are hardly surprising. We have seen 10 during the past year.


Pullbacks in an uptrend are healthy, like brakes on a train or a breather in a workout. The complication is that many of us still bare the wounds of 2008. Each pullback makes us wonder whether the recovery has finally run its course, suggesting hard fought gains must be protected at all costs... Sell!

Fortunately, there are weekends.

We scanned papers and emails looking for clues about what might happen this week, and several sage commentators caught our attention. Oppenheimer's Carter Worth reminded us we've all been a bit cavalier, forgetting markets do indeed correct. Chris Verrone of Strategas provided a slew of technical indicators to suggest this pullback has nearly run its course. Brian Sanborn of Ned Davis suggested, therefore we focus on quality names we would to own.


We took their collective wisdom to heart, and decided to screen the S&P 500 for companies with above-average earnings growth, operating margins and one-year returns.


A surprising 99 of 500 components made the list, suggesting this market may be fundamentally stronger than we thought. So we narrowed the list to only those companies whose stocks trade less than the market average of 15.5 times estimated 2014 earnings. Voila... 24. We showed ten on-air, and show the entire list here.


Ameriprise Financial (AES ), Apple (AAPL ), Bank of America (BAC ), CA Inc (CA ), Coca-Cola Enterprises (CCE ), Corning Inc. (GLW ), Direct TV (DTV ), Dover Corp (DOV ), Franklin Resources (BEN ), Gannett Co (GCI) , Halliburton (HAL ), Invesco Ltd (IVZ ), Lorillard (LO ), Mylan Inc (MYL ), Nasdaq OMX Corp (NDAQ ), Norfolk Southern (NSC ), Principal Financial (PFG ), State Street Corp (STT ), Suntrust Banks (STI ), TE Connectivity (TEL ), Time Warner Inc (TWX ), Total System Services (TSS ) and Viacom Inc (VIAB ).

Before it's here, it's on the Bloomberg Terminal.