Stock Picks: Beat the Market by Day — and Sleep at Night
I was scanning the headlines as I ate breakfast the other day, and I came across a story about a market survey that said investor sentiment was at a new low for the year.
A third of investors surveyed were expecting a decline in stocks of 10% or more. And only one in three said they thought stocks could rise over the next six months.
According to that story, folks are still worried about inflation, and they're now concerned about bank failures. You've also got recession fears, skidding earnings, and now the whole debt-ceiling mess in Washington.
I could keep going, but you get what I'm saying: Investors feel like there's lots to be worried about.
Maybe the most in several years.
That's why I turned to Senior Analyst Mike Burnick…
To help TradeSmith readers make sense of everything that is going on.
To address the current “bumps in the road” out there.
And to uncover the opportunities. KK: In your view — out of all the “worry points” out there — which are valid? Which ones can investors dismiss, and why?
MB: That's a great question, Keith.
I've been in this business for 30-plus years. So I can say with lots of confidence that there are ALWAYS things to worry about.
But you have to be willing to play the hand the market is dealing you. You have to work within the realities you're facing.
For instance, rising inflation and higher interest rates are two of the biggest stumbling blocks facing stocks this year.
We've all heard the market maxim “you can't fight the Fed.” But you can't fight the tape, either — meaning you can't fight the market trend, which has been UP since late last year. So you zero in on “inflation-proof” stocks that won't be hurt by higher rates and inflation — or that, even better, actually benefit from these forces.
KK: Speaking of market maxims, we've all heard the one that says “sell in May and go away.”
You're not an advocate of that here, though, are you?
What's your outlook for stocks — broadly speaking — right now? What will the big bellwethers do over the next few months? Through the end of this year?
MB: Well, stocks are extended, no question, with the SPX up nearly 20% from the lows of last October. So we certainly could see a correction. I mean, when you consider all those Fed rate hikes — and the impact they're having on our economy — you're looking at a real wild card right now. But overall, I'm bullish on the outlook IF you stick to the shares of healthy, high-quality companies. And, fortunately, our TradeSmith tools, strategies, and stock screeners can show you exactly how to find those stocks. KK: Not the time to fold your hand?
MB: Absolutely not, Keith.
I've been an investment pro, in one form or another, for decades. I'm an avid student of market history. I've lived through and navigated a bunch of bear markets.
And the bottom line is this: Between April 1947 and April 2022, there have been 14 bear markets, with the S&P 500 dropping anywhere from 20.6% to 51.9%.
But we already had a 25% drop last year, so the worst may be over for stock market volatility. KK: That's an important bit of context.
MB: It really is. Especially when you consider what I said a moment ago — that we've already been down as much as 25% in this bear market.I think back to one of my favorite Warren Buffett quotes: “Be greedy when others are fearful.” And we have seen a lot of fear over the past year. So you really have to “play the hand the market dealt you” to take advantage of the opportunities that are clearly on the table.
And while they change from one period to the next, there are always opportunities.
Even ones you create for yourself. KK: Great overview, Mike. So what should investors be keeping top of mind at this juncture? I know that, here of late, you've talked about blue-chip companies with big dividend payouts. And you've been looking at “defensive” stocks.
MB: That's right, Keith. That has been a consistent message. And it's one that's well worth repeating: Consider buying shares of healthy, high-quality companies for your portfolio. That's especially true at times like this when there is so much uncertainty.
And we have the tools to point you in the right direction. Tools like our Business Quality Score (BQS) screener.
For my Ultimate Income trading service, I use the same TradeSmith screener tools that everybody can access. I screen for stocks in our Health Indicator Green Zone that are trending up and have a high BQS.
An approach like this one is the key to finding quality. Because, as you know better than anyone, Keith, our BQS is a complex algorithm that crunches thousands of data points for each and every stock in our universe.
But it boils all that data down to a single score — one simple number — that tells you at a glance whether a stock is a quality buy candidate or a junk stock to avoid at all costs. KK: Maybe you could list a couple of stock ideas folks could research on their own?
MB: Sure, Keith. Glad to.
That “screener” that I mentioned? I run that several times a week for my Ultimate Income trading service and for my twice-a-week Inside TradeSmith column. It's one of the main ways I come up with stock picks — and even entire investment strategies — for my readers and my paid-up subscribers.
I just ran it again a few days ago. And I came up with some interesting stocks…
One example: Cisco Systems Inc. (CSCO), an old-school technology giant. Veteran investors will remember Cisco as one of the “Big Three” tech giants of the late 1990s and early 2000s, along with Microsoft and Intel. Intel owned the chip market. Microsoft dominated software. And Cisco was the networking king.
Cisco is still around. And the company still fills a big need: It provides the “plumbing” that keeps us all connected to the internet so we can watch our Netflix movies without interruption while we shop for stuff on Amazon.
CSCO was recently trading at about $49 a share. It carries a BQS of 97 out of 100, AND it's got a dividend yield of more than 3%. So you'll be paid well while you wait for the share price to climb.
KK: That's interesting, Mike. What else have you got?
MB: Here's another stock that made the cut on my stock screener: Occidental Petroleum Corp. (OXY) — Warren Buffett's favorite energy stock. His Berkshire Hathaway holding company owns nearly 25% of OXY shares — and I can totally see why. The company's revenue topped $36 billion last year and generated $16.8 billion in cash flow. Plus, OXY has a BQS of 96, an outstanding score for a cyclical oil-and-gas company.
OXY was trading right around $60 a share this week. And it pays a dividend — about 1.2%, which is less than the aforementioned Cisco. But that still bolsters your total return. KK: You've made a special point of mentioning dividends, Mike. How important are they?
MB: The short answer, Keith, is that they're very important. But it's important to think about dividends in their broader context: as an element of income, which is a crucial component of investing success.
And when I refer to “income” strategies, I'm talking about ways regular investors can accelerate income payments — augmenting the profits that come from conventional capital gains.
In fact, that's the foundation — the core strategy — of my Ultimate Income service. And with the Fed's headwinds, this debt-ceiling mess down in Washington, and some of the other stuff I've mentioned here, it's a strategy that everyday investors should take a look at.
I mean, it's an approach that can help you dodge these stock-market “land mines” and take back control of your money.
It's the strategy that I use for myself.
And as I like to tell investors that I speak to, with this strategy you can beat the market by day… and sleep well at night.
TradeSmith is not registered as an investment adviser and operates under the publishers' exemption of the Investment Advisers Act of 1940. The investments and strategies discussed in TradeSmith's content do not constitute personalized investment advice. Any trading or investment decisions you take are in reliance on your own analysis and judgment and not in reliance on TradeSmith. There are risks inherent in investing and past investment performance is not indicative of future results.
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