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As the saying goes, "From the ashes a phoenix shall arise." And the same can be said for our current market. Fortunately, the Fed recently recognized the strength in household spending, industrial production, business investments, and a robust labor market in Q1. They even expressed optimism for a strong Q2 and GDP advancing at a solid pace for the rest of the year. Though this is very good news for our economy, there's no way to time the market or predict unfavorable economic events. That's why investors should pay attention to what the Fed says - so they can put themselves in a better position to withstand imminent market volatility. Because investor sentiment, at the moment, is more pessimistic, there's the opportunity to buy stocks that have been burned, but still have the potential to soar, which is the secret to making money. This article will help you find more of those stocks. There is a somewhat new phenomenon called the "V"-shaped recovery. This is basically a swift move lower followed by an equally swift move back higher. People who watch every tick of nearly every stock will have an advantage over most investors; they know the best time to jump back in. This leaves most investors out in the cold, unless they have the intestinal fortitude to withstand the big drops. But who among us didn't panic even just a little during the Coronavirus correction? Markets Come Back, Some Stocks Don't Reeling from the effects of the pandemic, it seemed just about every stock saw some pain in market-wide sell offs. But most have gained back the ground they lost, and then some! Glamour stocks, the ones with plenty of media coverage, are among the first to get those losses back. The problem is that the speed at which glamour stocks gain back ground can be mind-bending. The stocks that don't get it all back at once should be the ones you focus on. The problem is, there are just too many of these stocks and some of them will never get the media spotlight cast on them. Thankfully, there are stocks that get beaten up, pause at or near the bottom and then begin to head back higher. These stocks generally have something in common; it's a combination of upgrades and higher earnings estimate revisions. More . . . | ||||
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| Gauging the Fear Oftentimes, market-wide sell offs are predicated on macro events. Sometimes it comes when a major economy looks close to slipping into a recession (Germany). Other times it could come from a turbulent business climate and slower-than-projected economic growth (China). These macro events tend to bring sudden and severe changes to prices across all markets. There are signals, however, that tell us when traders are expecting a big change in the direction of the markets. It is not an infallible signal, but it has given traders a heads up many times in the past. The indicator I am referring to is the VIX, a measure of the volatility in the markets. Without going into too much detail, suffice it to say that as the VIX rises, the amount of fear in the market is rising as well. Professional traders that have the dry powder often hold their nose and dive into the mess of the markets when the VIX is reaching highs. As the index begins to return to more palatable levels, regular investors tend to follow suit. Analysts Calling the Bottom While traders and daily market watchers have the VIX to follow, those who focus on a day job most of the time are left with a different barometer. One of the biggest sources of market-moving information (that doesn't come directly from the company itself) are the analyst reports that come from brokerages and specialty research firms. Most analysts will just ride out the volatility in their respective foxholes and keep their heads down. There are some, however, that will go out on a limb when they think the time is right. I am not talking about the analyst that upgrades the glamour stock, it's the stock that few have heard of that has dipped to single digits. Those big corrections give analysts the chance to really stick their necks out and start coverage or upgrade one of those unloved stocks that has seen its price drop dramatically. These events don't happen that often, but shortly after things start to look up, the upgrades will boost these stocks back to the double digits. The Best Part of the Upgrade When analysts upgrade a stock, they tend to say the story has changed and the outlook is getting better. Following a large macro-driven correction, some stocks break below the double-digit threshold and that can be just the thing that makes some analysts salivate. It is not a surprise to most when I say that some upgrades are better than others. The total reversal from sell to buy is great, but the upgrade that carries the most weight is the one that comes along with a strong move higher in earnings estimates. Not only is the analyst saying that the price of the stock is undervalued (thanks to the macro-driven correction), but the outlook has vastly improved and the earnings estimates are being revised up as a result. Other analysts see that upgrade and after some homework could come to the same conclusion. The best result is a string of upgrades with an equally strong string of higher earnings estimate revisions. While there are many market sources reporting on the daily upgrades and downgrades, few are watching the estimated revisions as closely as the Zacks Rank. And you can use the Zacks Rank in conjunction with macro selloffs to find the stocks that analysts like and foresee results improving. Riding the Rebounds If you're looking for one of the most potentially profitable ways to cash in on rebounding stocks, I invite you to join the investors following the live trades in our Stocks Under $10 portfolio. We focus on companies that are primed to make big upward moves. We get in when the Zacks Rank and other proven indicators point to success ahead, and ride them toward serious growth. For example, we've recently closed out positions with gains of +108.6%, +110.4%, +393.8% and even +995.2%.¹ Get started today and you are also welcome to download our just-released Special Report, 7 Best Stocks for the Next 30 Days. From our proven list of 220 Zacks Rank #1 Strong Buys, our team of experts handpicked these 7 for immediate breakout. But a word of caution: Your chance to download this bonus report ends midnight Sunday, June 5. See our Stocks Under $10 and download the Special Report now » Best,
Brian Bolan is our aggressive growth expert and the editor of Zacks Stocks Under $10 portfolio. | ||||
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| ¹ The results listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors and may represent the partial close of a position. This free resource is being sent by Zacks.com. We look for investment resources and inform you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms of Service". https://www.zacks.com/terms_of_service Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research is not a licensed securities dealer, broker or US investment adviser or investment bank. The Zacks #1 Rank Performance covers the period beginning on January 1, 1988 through April 4, 2022. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank #1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance_disclosure for information about the performance numbers displayed above. Zacks Emails Zacks Investment Research |
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