Are You Invested In The Right Area Of The Market?

| About: Centene Corporation (CNC)

Being in the right areas of the market at any given point in time can vastly improve your investing experience. The obvious next question is, what are the right areas of the market at the current time?

Depending on who you ask or listen to, you will get a variety of answers. Some will say that the right areas are the ones that are beaten down and out of favor. Like the emerging markets that are trailing the U.S. market by a wide margin this year. Like precious metals which have seen gold prices drop from $1800 per share to $1300 per share.

Others would say to spread your money around in a wide variety of asset classes. That way you will be sure to own the ones that are doing well. The problem that I have with this advice is that it also insures that you will be in the asset classes that are currently in bear markets like bonds, precious metals, and emerging markets.

For me, I like to be in the areas of the market that are performing the best. When they are no longer performing the best, I move on. I don't care if it is high-yield bonds, silver, China, inverse funds, etc., etc., that are performing best at any given point in time, that is where I want to be.

So what has been performing the best in 2013? Where are the best places to be in the market right now? I am glad that you asked that question, because this is a year that the leadership in the market has been very narrow and concentrated. This makes it a lot easier to find some potential big winners.

I rank 45 different asset classes on a daily basis. I am happy to report that for the last twelve months, there has been little change at the top of the leader board. This is a good thing, because it means that we have trends in place. Trends are good as long as they remain in place. Trends can be very good money making propositions.

Here is the current leaderboard of the various asset classes that we have to choose from:

Data from Best Stocks Now app

As you can see from the above screenshot, the leadership in the market continues to be dominated by equities, and more particularly small and mid-cap domestic stocks.

By contrast, here is a screenshot of the worst asset classes in the market right now:

Data from Best Stocks Now app

As you can see, the worst asset classes to be invested in are inverse exchange traded funds, precious metals, cash or cash equivalents, and emerging markets. So much for asset allocation. I wrote an entire article on this subject recently.

It is pretty hard to argue with the fact that the S&P 600 small-cap index is up almost 24% so far this year and treasuries are down almost 10%. China (NYSEARCA:FXI) is now down over 16% year-to-date. Don't give me the contrarian case, because I don't want to hear it. I have heard the contrarian case on gold all the way down from $1800 to $1200. No thanks!

Until further notice, the small and mid-cap domestic equity market is the sweet spot in the current investing world. Now let's zero in a little bit more, because there are still more than 3,000 stocks that fit this description.

Let's next look at the leading sectors in the market. This is the next level down below asset class. I track 60 different sectors on a daily basis. I am happy to report that several trends have been in place here too, and they still remain in place today.

Data from Best Stocks Now app

As you can see from the screenshot above, the top sectors in the market continue to be dominated by medical or healthcare related ones. I have had a lot of exposure to biotechs, pharmaceuticals, and healthcare stocks this year. That has helped my performance immensely.

Now that we have zeroed in the right asset classes and sectors, let's look for a leading stock candidate. One that I currently own is Centene (NYSE:CNC). Here is why I own it.

Data from Best Stocks Now app

Centene is a mid-cap, domestic healthcare related stock that is headquartered in Parsippany, NY. This a good start. Some investors are value investors while some are momentum investors, I am both. I require performance and value in the stocks that I own.

Let's begin with the performance of the stock:

Data from Best Stocks Now app

As you can see, the stock has handily outperformed the market by a wide margin over the last one, three, five, and ten years. It earns a performance grade of "A-" when I compare it against the other 3,414 stocks that I track daily.

The stock has also outperformed the market over the last one, three, and twelve months. It currently earns a momentum grade of "A". The one-year chart of Centene is a good illustration of the current strength in the stock:

As I mention earlier, I also require value in the stocks that I buy. However, I do not like so-called value stocks that don't have performance. There are far too many value traps out there. Let's take a look at the stock's current valuation:

Data from Best Stocks Now app

The shares are currently trading at about 16 times forward earnings. This is a discount to its anticipated growth rate of 21.5% per year over the next five years. This gives the stock a favorable PEG ratio of 0.75.

Furthermore, if I take the company's current earnings estimates, extrapolate them out over the next five years, and apply a multiple that I think is appropriate, I come up with a five-year target price that is almost 90% higher than the current price of the stock. I require 80% or more upside potential over the next five years in order for a stock to meet my strict valuation criteria.

While there are obviously no guarantees in the market, I believe that we can certainly increase our probabilities of finding winners in the market by following the aforementioned procedures. Centene is in the right place at the right time and it possesses all of the qualities that I demand in the positions that I own. Even then, I never make any one position more than 3% to 5% of my overall portfolio.

Centene is a stock that I currently own in the aggressive growth accounts that I manage. Out of 3,414 stocks that I track, it currently earns a Gunderson overall grade of "A" and ranks #60. This represents the top 2% of the entire market.

Data from Best Stocks Now app

Data from Best Stocks Now app

Disclosure: I am long CNC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.