4 Stocks to Consider in This Whipsaw Environment

The market doesn’t seem to know which way it wants to go. Last week was literally the mirror image of the previous week. The best style/cap two weeks ago was Small-cap Value; last week it was the worst (-3.4%). The worst style/cap two weeks ago was Large-cap Growth; this week it was the best (-1.9%).

Sectors were no different, with last week’s three winners — Financials, Industrials and Materials –turning up as this week’s big three losers, led by Materials, down -4.7%. Last week’s losers — Consumer Staples, Health Care and Telecom — were this week’s best performers, led by Health Care, down only 1%. In all my years of participating in the market, I don’t recall ever seeing such a complete turnabout in a single week.

Only our forward-looking sectors rankings didn’t join in. They remain very much as last week, with Utilities, Energy and Health Care on top and Technology, Financials and Materials at the bottom.

Merger Talk Boosts Market. Thursday and Friday were ugly market days, but inexplicably the market took off today, ostensibly on M&A talks from Abbott Laboratories (NYSE: ABT) courting Belgian chemicals maker Solvay and from Xerox Corp. (NYSE: XRX) agreeing to buy Affiliated Computer Services (NYSE: ACS).

The S&P 500 ended the day up 18 points (+1.8%) despite the fact that last week’s economic indicators were average, at best, with LEI [leading economic indicators] and durable goods both below expectations and jobs data and FOMC comments mildly positive.

While it is tempting to stay on the sidelines among such volatility, that strategy has not been a reasonable one throughout 2009, as many investors who sat on their cash can attest. The trick is to simply watch the valuations . . . don’t pay too much! Compare a company’s valuation against its own history and also against its industry. Shop for bargains, and hedge with puts against overvalued niches.

Stocks to Consider. This week, I ran a MyStockFinder search using the High Growth preset search. Here are some stock ideas that look tempting:

• Illumina (Nasdaq: ILMN) – Healthcare (Sabrient Growth Score = 100)
• CNinsure (Nasdaq: CISG) – Financials-Insurance (Sabrient Growth Score = 97)
• Vimpel Communications (NYSE: VIP) – Telecom (Sabrient Growth Score = 97)
• Peabody Energy Corporation (NYSE: BTU) – Energy (Sabrient Growth Score = 95)

Disclosure: No positions.

By David Brown, Chief Market Strategist, Sabrient Systems, LLC

Comments

[epeon]

I do like basic coal stocks. However, I prefer ARLP. It is in the same basic business and, being an MRLP, it pays a very nice 8+% dividend. So, you get paid while ou waitl

2009 Sep 29 08:51 AM

[absolute return guy]

Epeon, I don't mean to sound naive but could you tell me what an MRLP is. The dividend sounds nice and I am looking to add a couple long positions. I usually hold options but might like to add a dividend stock with 8%. Thanks.

2009 Sep 29 11:46 AM

[realold]

Consider BGR as a first rate closed end fund that actively moves around among coal, gas and oil.

2009 Sep 29 10:40 PM