What The Market Wants: Another Sell-Off, A Market Conundrum

Published 04/08/2014, 01:10 AM

What can we say after yet another sharp sell-off? Since last Friday’s open, the S&P 500 has fallen nearly 3%, the Nasdaq has fallen more than 4.3% and the Russell 2000 has fallen more than 3%. We might argue that the S&P 500 held slightly above its 50-day moving average, after falling below it. Or that the Nasdaq didn’t, and it is well below the 50 day moving average and only about 4% above its 200 day moving average. Perhaps, it would cooler to remind you that the style/cap down last week was Small-cap Growth, off only 0.46% or that Mid-cap Value was up 1.18% on the week to lead the cap/styles (see market stats). Is the glass half full or half empty?

Frankly, it could be either. I have read compelling arguments for both this weekend. The fact is that we just don’t know. Year-to-date, all major markets are down with the S&P 500 doing the best, down only 0.2%. The DJI, NASDAQ and Russell 2000 are all off around 2% or a bit worse. Does the economy look 2% worse than it did at 2013’s end? Domestically, globally, or universally? That’s probably a stretch with political progress domestically. But in turn, one could argue that the market was overvalued by 5% to 10% at year end.

It is a conundrum. But where else shall we put our money? All sectors were down today as well as Friday, except for Utilities. But do we really want to put our equities in Utilities with the likelihood of a rising 10-year treasury yield over the next year or so? Housing prices are up a bit, but if so, then one should expect the economy to grow.

I hate to sound like a broken record but since February of 2009, undervalued growth stocks have been the best choice for most of us, and I would argue that it still is. It just isn’t that hard to find a few dozen stocks that carry very reasonable forward PE’s and are destined to grow their earnings over the next few years.

If that is frightening, then consider hedging with a VIX-based hedge. Today that was great (up more than 11%), but for most of the last year, it hasn’t been that much help.

3 Stock Ideas for this Market

The following stocks were selected from the top of our stock universe with great earnings growth projections, reasonable valuations and recent upward revisions to earnings estimates.

Valero Energy Corporation (NYSE:VLO) –Energy

  • Trading for 10x current earnings and 8x forward earnings estimates
  • Analysts have revised earnings estimates up in the last 7 days
  • 23% projected EPS growth current quarter, 100% next quarter, 345% in 2014, 10% 5-year

American Airlines Group (AAL.O)—Industrials

  • Trading for 7x forward earnings estimates
  • Analysts have revised EPS estimates up in the last 7 days
  • 60% projected EPS growth next quarter, 61% in 2014, 39% 5-year

NXP Semiconductors NV (NASDAQ:NXPI)—Technology

  • Trading for 41x current and 12x forward earnings estimates
  • 26% projected EPS growth this quarter, 44% next quarter, 28% in 2014, 36% 5-year

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers
© 2007-2025 - Fusion Media Limited. All Rights Reserved.