Stand Ready to Buy on Weakness, Say Strategistsby
Three strategists in 24 hours have all offered strikingly similar interpretations of the downtrend for equities that began last week -- Komal Sri-Kumar, president of Sri-Kumar Global Strategies Inc., Mary Ann Bartels, chief investment officer of portfolio solutions for Bank of America Corp. and Chris Verrone, head of technical analysis at Strategas Research Partners LLC.
To borrow a phrase from Barry Knapp, managing director of fixed income at BlackRock, Inc., "We're in a period of adjustment." Specifically, Mr. Knapp says we're adjusting to the prospect of an eventual pivot in Fed policy, whereby Fed Chair Janet Yellen will begin reducing the unprecedented level of liquidity which has marked the past five years.
While the transition introduces uncertainty for investors, all three strategists believe the market decline will prove short-lived, due largely to consistent earnings growth and rising gross domestic product. Ms. Bartels and Mr. Verrone are calling for additional declines of 3 percent to 4 percent for the S&P 500 Index, which would bring total losses since the all-time high on July 24 to about 8 percent.
Critically, there is a corollary to their commentary: Stand ready to buy on weakness, especially if stocks return to the one-year trend line pictured above. So today we are searching for potential buy candidates based on two criteria. We're looking for companies whose stocks trade at a slight discount to the broad market, and whose earnings are growing at least twice as fast.
Thirty-one companies met our criteria. We shared 10 on-air and provide the complete list for blog readers: AGL Resources Inc. (GAS ); Ameriprise Financial, Inc. (AMP ); Bank of America Corp. (BAC ); CA, Inc. (CA ); Chesapeake Energy Corp. (CHK ); ConocoPhillips (COP ); Corning Inc. (GLW ); Delphi Automotive Plc (DLPH ); Devon Energy Corp. (DVN ); D.R. Horton, Inc. (DHI ); Entergy Corp. (ETR); Gap, Inc. (GPS ); Genworth Financial Inc. (GNW ); Gilead Sciences, Inc. (GILD ); Legg Mason, Inc. (LM ); Lennar Corp. (LEN ); Lincoln National Corp. (LNC ); LyondellBasell Industries NV (LYB ); Marathon Petroleum Corp. (MPC ); Morgan Stanley (MS ); Mylan Inc. (MYL ); NetApp, Inc. (NTAP ); Principal Financial Group, Inc. (PFG ); Qualcomm, Inc. (QCOM ); Raytheon Company (RTN ); SunTrust Banks, Inc. (STI ); Tesoro Corp. (TSO ); Tyson Foods, Inc. (TSN ); Valero Energy Corp. (VLO ); Verizon Communications Inc. (VZ ); Whirlpool Corp. (WHR) .