Best Stocks for a
The market has been shaky recently and
many gurus are forecasting further weakness ahead. With that in mind,
I’m going to describe a stock screen that you could use to find stocks
that, based on my research, have the best prospects for producing
positive returns in a downtrending market.
Contrarian Strategy Works Best in Down Market
What I’ve found is that, for the most part, a contrarian
approach works best. That is, in a weak market, you want to hold stocks
that you wouldn’t want in an uptrending market. For instance, in a
strong market, your best candidates are those that analysts are advising
buying and forecasting strong future earnings growth. However, in a weak
market, you’ll do best sticking with stocks that analysts don’t like and
don’t think will grow earnings much, if at all, in coming years.
Here’s how you can use the free and user-friendly FINVIZ
stock screener to find such candidates. If you’re not familiar with the
term, a stock screener is a program that allows you to scan the market
for stocks meeting your requirements.
On the FINVIZ home page (http://finviz.com/),
Screener to get started. On FINVIZ, you use predefined filters to
pinpoint stocks meeting your selection criteria. Select “All” on the
Filters menu to see the available filters. Then use the associated
dropdown menus to select values for filters that you want to use.
Market Screen Setup
Start by selecting “USA” on the Country menu to limit your list to
U.S.-based stocks, and “over 1M” for Average Volume to assure that your
stocks are trading in enough volume (one million shares daily) to appeal
to big investors.
Stock analysts usually publish “strong buy, “buy,” “hold,’ “sell,” or
“strong sell” ratings for stocks they cover. For reasons I don’t have
room to cover here, many analysts use the “hold” rating to identify
stocks that they are really advising selling. So, isolate stocks out of
favor with analysts by selecting “hold or worse” for Analyst
Recommendation, and “Positive,” for expected long-term annual earnings
growth (EPS growth next five years), which limits your list to stocks
with only modest growth expectations.
Even when following a contrarian strategy, you’ll still do best by
sticking with stocks that institutional investors such as mutual funds
and large banks favor. You can do that by requiring “Over 50%” for
Institutional Ownership, which is the percentage of shares held by those
While high volatility can be your friend in an uptrending market, you
want low volatility stocks in a down market. For Beta, which measures
historical volatility, values above 1.0 signal high volatility and
vice-versa. So select “Under 0.5” for Beta to limit your list to the
lowest volatility stocks. Since, low-priced stocks are more volatile
than higher priced stocks, specify “Over $15” for Price to rule out the
by Big Money Holdings
That’s it. Click on the Institutional Ownership column to sort the list
with the highest values at the top, and then
pick the top five stocks by that measure. Here are the five that my
screen listed. Here's
link so you can see what the screen turns up today.
Market Stock List
Restaurant operators Darden Restaurants (DRI) and Dunkin’ Brands (DNKN),
medical technology systems makers Cepheid (CPHD) and Illumina (ILMN),
and waste disposal services provider Stericyle (SRCL).
As always, consider the results of any screen to be research candidates,
not a buy list. Also keep in mind that this screen
picks stocks for a weak market. Sell them if the market heads up instead