My early September entry ‘12 Stocks to Purchase on the next Pullback’ has been one of the more popular entries on the blog in its entire history. Since we are now a quarter later, and a lot more info has emerged since, I want to update this entry with a new set of choices for […]
My early September entry ‘12 Stocks to Buy on the next Pullback’ has been one of the more popular entries on the blog in its entire history. Since we are now a quarter later, and a lot more info has emerged since, I want to update this entry with a new set of choices for the coming months.
With the markets at a precarious perch, just below major resistance but certainly with the help of the ‘invisible’ hand could be pushed back above… but assuming the prospects of a Fed with their hands tied by the twin towers of inflation and slowing growth, let’s assume some pullback is coming. What are the most interesting sectors that would be enticing on a pullback? Please note the above list only contains stocks that have yet to ‘correct meaningfully’.
Last time around I focused on the following sectors with a top down approach: (less cyclical) oil service, deep sea oil drilling, solar power, networking, techology - other, global infrastructure, global agriculture, china, and retail.
Many of these same sectors strike my fancy
(Less cyclical) Oil service
I still like this area but aside from National Oilwell Varco (NOV) most still trade below a major resistance area (50 day moving average), so NOV quickly becomes *the* pick as it has recently broke out to $78. A pullback to its 50 day moving average near $71-$72 area would be enticing.
Deep Sea Oil Drilling
This whole group has broken out so it’s a perfect candidate for this sort of “buy on the next pullback” review. With GlobalSantaFe (GSF) now off the table after its merger with Transocean (RIG), we have RIG, Atwood Oceanics (ATW), or Diamond Offshore (DO) as our choices. I prefer the latter two as more of pure plays in deep sea and less on rigs closer to shore… Diamond Offshore has 50 day support in the mid 110s, and Atwood Oceanics around $83. Pick 1.
Solar
A group on FIRE…. the easiest choice in terms of ’safety’ and knowing what you’ll get is Suntech Power (STP). It currently trades at $83, and its 50 day moving average is way down there at $63, so it would take quite a calamity to correct that far. With stocks in such strong uptrends, I try to buy at least a beginning position at the 20 day moving average (currently $75) and then cross fingers for more weakness to add to it. Even with it’s huge move, it is still cheaper than its American counterpart Sunpower (SPWR). First Solar (FSLR) is another candidate but with ‘potential’ for some slower 1st half 2008 guidance due to capacity constraints and a stock priced for more than perfection it might not be the safest to hold going into the next earnings with an investor base that demands perfection.
There are numerous more speculative fare in this sector - literally throw a dart and you hit a stock making a big move.
Technology - Other
Out of all the teflon stocks - Google (GOOG), Apple (AAPL), Research in Motion (RIMM), Baidu.com (BIDU), Apple and Baidu.com have held up the ideal in the past week or two. With the clarity of the Apple roadmap, it just seems too good to pass up. We currently have Apple in the low $190s; any gift such as a pullback to the 50 day moving average ($174) would be very enticing - this will be an Apple Christmas
Global Infrastructure/Energy
I follow 7 names in this sector - the ideal relative strength has been shown by Foster Wheeler (FWLT), Jacobs Engineering (JEC), and Chicago Bridge & Iron (CBI). Literally throw a dart, pick 2, and hope for a pullback to their 50 day moving averages. These stories will be playing out for years, even as investors switch from 1 to another on their short sighted focus simply on the next quarter.
Agriculture
I like fertilizer so much, I’d state pick 2 names - my stocks have been Mosaic (MOS), Potash (POT), and CF Industries (CF). Again, hope for a pullback to their 50 day moving averages (which they did pull back to in November), and this is where we’d want to be buying. Another multi year bull market. The fertilizer side has been much stronger than the equipment side (i.e. tractors) of late.
Financials
Yes you heard me. We’ve two beauties in Blackrock Financial (BLK) and Mastercard (MA). The more messy things get in the financial world, the more business that seems to be flowing to the former, and the more the world goes to plastic the more the latter benefits. If one likes to be in the asset manager business they have the ability to go with Blackrock; if one likes ‘transactions’ they have the ability to go with Mastercard. With Mastercard in the $220s and its 50 day moving average around $183, if the market would correct, this would be currently my choice of these 2.
At this point I don’t see any sufficient names in China, or retail, or networking (areas I covered last time around) so I will have to find 3 new names/sector
Coal
I’ve been a huge bull on this sector for months. We have multiple domestic names - really pick your poison among Peabody Energy (BTU), Consol Energy (CNX), or Massey Energy (MEE). I’d be adding heavily to all of these on a pullback to the 50 day moving averages as we’ve the quietest bull market on the street developing
Foreign non China/India
Two picks here I really like - if mining is more your bent, Mechel (MTL) the Russian coal/iron/steel maker continues to impress. If energy is more your thing we have Brazilian oil giant Petrobras (PBR). Both have pulled back from recent highs, Petrobas at $108 is 14 points above its 50 day moving average of $94. $94 is also where the stock bottomed out in the November correction so we have the ability to hope for a pullback to that level (hope being operative word). Mechel has swiftly pulled back from >$100 to $94, just a bit above its 20 day moving average of $90. It’s 50 day moving average is in the upper $70s and rising quickly so we can hope for a pullback there. Almost made the cut: Millicom International Cellular (MICC), but some slowdown in Latin America cell sales could be an issue - have to monitor this one closely.
India
While Chinese stocks have suffered of late, India has propsered. While I think this recent run needs some correction, that’s exactly what we are hoping for. Multiple picks in India - one can go with the banking sector and find a HDFC Bank (HDB) or ICICI Bank (IBN), or if one wants a more industrial bent there’s copper stock Sterlite Industries (SLT). All 3 names have corrected a bit to their 20 day moving averages but still are far above the 50 days. Pick 1.
******
So there’s a quick and dirty overview of a new dozen…. all made tremendous runs of late when the market was up 5-6% from November lows, and most are holding their own in this post Fed weakness; but if the markets wake up to the fact of potential recession, growing inflation, credit crunch and weakening profits (what a combo!) - the above groups should see correction and make for solid buying opportunities. And if you want to benefit from a coming correction, may I suggest some Ultrashorts…. but that’s another post.
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