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The Gist

"Something Wicked This Way Comes" is a 1962 novel by Ray Bradbury about two boys who have a harrowing experience with a nightmarish traveling carnival that comes to their town. I've always loved the title and posit it may be apropos for the market at this time. A seeming plethora of dark clouds on the horizon portend the possibility of bad things happening to good stocks in the coming weeks.

We have North Korea about to step over the red line, global growth seemingly slumping and a strengthening dollar. This looming trifecta of tumult coupled with the markets at all-time highs foreshadows a major correction. Nevertheless, corrections provide opportunity. The following is my position on how to profit from it. The following are five stocks to buy on weakness.

The Goods

We will perform a review of the fundamental and technical state of each company. Furthermore, we will attempt to discern if any upside potential exists based on a sector, industry or company specific catalyst. The following table depicts summary and performance statistics for the stocks for Tuesday.

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Bank of America Corporation (BAC)

The company is trading 9% below its 52-week high and has 5% potential upside based on a consensus mean target price of $12.40 for the company. BAC was trading Tuesday at $11.75, down over 3% for the day.

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Fundamental Review

Fundamentally, BAC has several positives. The company has a forward P/E of 9.35. BAC has a net profit margin of 5.03%. BAC is trading for approximately 55% of book value. Insider ownership is up by 33% over the last six months. EPS next year is expected to rise by 30% and the company pays a dividend with a yield of .33%.

Technical Review

Technically, BAC is still in good shape, yet just broke below support at the 50-day sma which is negative. The stock has been in a solid uptrend since mid-July.

My Take

Although BAC did not increase the dividend after passing the Fed's stress test, they blew the Street estimates away by announcing a mammoth $10.5 billion share repurchase program. This propelled the stock to new 52-week highs. Nevertheless, the stock has pulled back significantly as of late due to the Cyprus banking debacle and global growth concerns. The stock is still trading at a 35% discount to book value. With the housing market continuing to improve, I see significant upside in the stock going forward. Use any pullback to pick up shares in the stock.

Citigroup, Inc. (C)

The company is trading 10% below its 52-week high and has 18% upside potential based on the analysts' mean target price of $50.57 for the company. Citigroup was trading Tuesday at $42.67, down over 3% for the day.

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Fundamental Review

Fundamentally, Citigroup has several positives. The company has a forward P/E of 8.43. Citigroup is trading for 71% of book value. The company has a PEG ratio of 1.448 and a net profit margin of 11.27%. EPS is up 36% quarter over quarter.

Technical Review

Technically, the stock is in an uptrend, yet just broke below the 5-day support level. The golden cross was achieved at the beginning of October. Recently the stock has pulled back somewhat.

My Take

Citigroup should benefit greatly from its focus on cost cutting and the resurgence of the US housing market. The company aced the Fed's stress test. Citigroup looks poised for solid earnings growth in 2013. Just as in the case of BAC, use any pullback as a buying opportunity. I posit we may have a 5 to 10% correction in the coming months.

General Electric Company (GE)

The company is trading 3% below its 52-week high and has 10% potential upside based on the consensus mean target price of $25.53 for the company. GE was trading Tuesday at $23.12, down almost 1% for the day.

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Fundamental Review

Fundamentally, GE looks undervalued. GE's forward P/E is 12.62. GE's quarter-over-quarter EPS and sales growth rates are 10% and 4%, respectively. GE's net profit margin is 10.11%. GE pays a dividend with a yield of 3.26%.

Technical Review

Technically, GE has been in an uptrend since bouncing off a low of $18 in June. Recently, the stock has broken out to the upside after testing the 200-day sma twice in the last quarter. Currently the stock is consolidating just above the 50-day sma.

My Take

GE looks poised to move higher. GE raised its authorized stock buyback to $35 billion and plans to buy back $10 billion worth of shares in 2013. I like the stock here, yet would definitely layer into any position due to my position that we are on the cusp of a correction.

Johnson & Johnson (JNJ)

The company is trading at its 52-week high and 5% above the consensus mean target price of $78.35 for the company. JNJ was trading Tuesday at $82.14, down almost 1% for the day.

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Fundamental Review

Fundamentally, JNJ has some positives. JNJ's forward P/E is 14.36. JNJ's quarter-over-quarter EPS and sales growth rates are positive. JNJ's net profit margin is 15.64%. JNJ pays a dividend with a yield of 2.95%.

Technical Review

Technically, JNJ has been in an uptrend for the last year. Recently, the stock has broken out to the upside of the current trading range. Nonetheless, the stock is showing signs of being overbought currently with an RSI of 74.

My Take

JNJ is a solid buy with increasing EPS and an ROE of 17. Reuters reports,

"JNJ recently announced plans to take on Botox maker Allergan (AGN) and expects to seek U.S. approval next year for an anti-wrinkle drug that could break Botox's 85% market share."

This is big news for the company and bodes well for the stock. JNJ is currently trading 7% above its 50-day sma. I would wait for a 5% pullback to start a position.

AT&T, Inc. (T)

The company is trading 1% below its 52-week high and 2% above the consensus mean target price of $36.63 for the company. AT&T was trading Tuesday for $37.37, down nearly 1% for the day.

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Fundamental Review

Fundamentally, AT&T has some positives. The company has a forward P/E of 13.86. The company has a net profit margin of 5.92%. The company is trading for slightly over two times book value and 21 times free cash flow. EPS is up 40% quarter over quarter. AT&T pays a dividend with a yield of 4.79%.

Technical Review

Technically, the stock is solid. It has been on a tear since the start of the year. The golden cross was just achieved. The stock is close to being overbought with an RSI of 65.

My Take

AT&T stated on its last earnings call that earnings and revenue would grow this year even if the economy does not improve due to the explosion in Internet enabled mobile devices.

The average mobile user used 201 megabytes of data per month in 2012, more than twice the 92 megabytes per month consumed in 2011. Cisco (CSCO) predicts mobile data traffic will post a 66% CAGR from 2012 to 2017. This bodes well for AT&T. Use any pullback as a buying opportunity.

The Bottom Line

Let's see, we have a market at all-time highs which has run up extremely fast over the last few months coupled with several negative developments looming. Top that off with the "Sell in May and Go Away" phenomenon on the horizon and we have a recipe for a major correction.

The saying three strikes and you're out comes to mind. I have taken some profits and raised cash. I want to have powder dry for any potential buying opportunities. A market correction is nothing more than a buying opportunity in disguise. If you review the history of the market, the market always bounces back and soars higher after each correction. The market is up more than 10 fold since the Black Monday crash of 1987. If you are a long term investor, use a correction as a buying opportunity to pick up shares in solid stocks at a discount price. Corrections are healthy for markets.

Furthermore, always remember to maintain a well-balanced diversified portfolio containing several asset classes. Use this information as a starting point for your own due diligence and research methods before determining whether or not to buy or sell a security. If you choose to start a position in any stock, I suggest scaling in to any position to reduce risk. Set a stop loss order to minimize losses even further if you wish.

Source: Something Wicked This Way Comes: 5 Stocks To Buy On A Pullback

Additional disclosure: This is not an endorsement to buy or sell securities. Investing in securities carries with it very high risks. The information contained within this article for informational purposes only and is subject to change at any time. Do your own due diligence and consult with a licensed professional before making any investment.