12 Stocks to Buy on a Pullback

My early September entry '12 Stocks to Buy on the next Pullback' has been one of the more popular entries on the blog in its entire history. Since we are now a quarter later, and a lot more info has emerged since, I want to update this entry with a new set of choices for the coming months.

The markets are at a precarious perch, just below major resistance but certainly (with the help of the 'invisible' hand) could be pushed back above. Assuming the prospect that the Fed has its hands tied by the twin towers of inflation and slowing growth, let's assume some pullback is coming. What sectors would be the most interesting and enticing on a pullback? Please note the  list only contains stocks that have yet to 'correct meaningfully'.

Last time around, I focused on the following sectors with a top down approach: (less cyclical) oil service, deep sea oil drilling, solar power, networking, technology - other, global infrastructure, global agriculture, China, and retail.

Many of these same sectors strike my fancy

(Less cyclical) Oil service
I still like this area but aside from National Oilwell Varco (NOV) most still trade below a major resistance area (50 day moving average), so NOV quickly becomes *the* pick as it has recently broke out to $78. A pullback to its 50 day moving average near $71-$72 area would be enticing.

Deep Sea Oil Drilling

This whole group has broken out so it's a perfect candidate for this sort of "buy on the next pullback" review. With GlobalSantaFe (GSF) now off the table after its merger with Transocean (RIG), we have RIG, Atwood Oceanics (ATW), or Diamond Offshore (DO) as our choices. I prefer the latter two as more of pure plays in deep sea and less on rigs closer to shore... Diamond Offshore has 50 day support in the mid 110s, and Atwood Oceanics around $83. Pick one.

Solar

A group on FIRE.... the easiest choice in terms of 'safety' and knowing what you will get is Suntech Power (STP). It currently trades at $83, and its 50 day moving average is way down there at $63, so it would take quite a calamity to correct that far. With stocks in such strong uptrends, I try to buy at least a beginning position at the 20 day moving average (currently $75) and then cross my fingers for more weakness to add to it. Even with it's huge move, it is still cheaper than its American counterpart Sunpower (SPWR). First Solar (FSLR) is another candidate but with 'potential' for some slower 1st half 2008 guidance due to capacity constraints. A stock priced for more than perfection, FSLR might not be the safest to hold going into the next earnings with an investor base that demands perfection.

There is more speculative fare in this sector - literally throw a dart and you hit a stock making a huge move.

Technology - Other

Out of all the teflon stocks - Google (GOOG), Apple (AAPL), Research in Motion (RIMM), Baidu.com (BIDU)- Apple and Baidu.com have held up the best in the past week or two. With the clarity of the Apple roadmap, it just seems too good to pass up. We currently have Apple in the low $190s; any gift such as a pullback to the 50 day moving average ($174) would be very enticing - this will be an Apple Christmas

Global Infrastructure/Energy

I follow 7 names in this sector - the best relative strength has been shown by Foster Wheeler (FWLT), Jacobs Engineering (JEC), and Chicago Bridge & Iron (CBI). Literally throw a dart, pick two, and hope for a pullback to their 50 day moving averages. These stories will be playing out for years, even as investors switch from 1 to another on their short sighted focus simply on the next quarter.

Agriculture

I like fertilizer so much, I'd say pick two names - my stocks have been Mosaic (MOS), Potash (POT), and CF Industries (CF). Again, hope for a pullback to their 50 day moving averages (which they did pull back to in November), and this is where we'd want to be buying. Another multi year bull market. The fertilizer side has been much stronger than the equipment side (i.e. tractors) of late.

Financials

Yes you heard me. We have two beauties in Blackrock Financial (BLK) and Mastercard (MA)

The more messy things get in the financial world, the more business that seems to be flowing to the former, and the more the world goes to plastic the more the latter benefits. If one prefers to be in the asset manager business they can go with Blackrock; if one prefers 'transactions' they can go with Mastercard. With Mastercard in the $220s and its 50 day moving average around $183, if the market would correct, this would be currently my choice of these two.

At this point I don't see any sufficient names in China, or retail, or networking (areas I covered last time around) so I will have to find 3 new names/sector
Coal
I've been a big bull on this sector for months. We have multiple domestic names - really pick your poison among Peabody Energy (BTU), Consol Energy (CNX), or Massey Energy (MEE). I'd be adding heavily to all of these on a pullback to the 50 day moving averages as we have the quietest bull market on the street developing

Foreign non China/India
Two picks here I really like - if mining is more your bent, Mechel (MTL) the Russian coal/iron/steel maker continues to impress. If energy is more your thing we have Brazilian oil giant Petrobras (PBR). Both have pulled back from recent highs, Petrobas at $108 is 14 points above its 50 day moving average of $94. $94 is also where the stock bottomed out in the November correction so we can hope for a pullback to that level (hope being operative word). Mechel has quickly pulled back from >$100 to $94, just a bit above its 20 day moving average of $90. It's 50 day moving average is in the upper $70s and rising quickly so we can hope for a pullback there. Almost made the cut: Millicom International Cellular (MICC), but some slowdown in Latin America cell sales could be an issue - have to monitor this one closely.

India

While Chinese stocks have suffered of late, India has prospered. While I think this recent run needs some correction, that's exactly what we are hoping for. Multiple picks in India - one can go with the banking sector and find a HDFC Bank (HDB) or ICICI Bank (IBN), or if one wants a more industrial bent there is copper stock Sterlite Industries (SLT). All three names have corrected a bit to their 20 day moving averages but still are far above the 50 days. Pick one.

So there is a quick and dirty overview of a new dozen.... all made tremendous runs of late when the market was up 5-6% from November lows, and most are holding their own in this post Fed weakness; but if the markets wake up to the fact of potential recession, growing inflation, credit crunch and weakening profits (what a combo!) - the above groups should see correction and make for solid buying opportunities. And if you want to benefit from a coming correction, may I suggest some Ultrashorts.... but that's another post.

[Please note that none of the above are buying advice for YOUR portfolio, please do your own research and determine what is best for you. And after you determine that... come invest in my mutual fund.]

Disclosure: Long all names above except deep sea oil drillers & Sunpower in fund; long Suntech Power, Mosaic, and Foster Wheeler in personal account.

Comments

[Stefan Wyler:]

I definitely agree on AAPL and STP :)

2007 Dec 17 02:24 PM

[Lisa:]

What's Mastercard's exposure to high-risk borrowers?

2007 Dec 17 04:06 PM

[raylo:]

Lisa baby, Mastercard doesn't lend money, it makes money from credit cards' transactions. Therefore, high or low risk don't bother them, only the volume of transactions.

2007 Dec 17 05:18 PM

[TraderMark:]

Lisa, here is a post I did about MA

www.fundmymutualfund.c...

They essentially are a play on the move away from a cash society to a plastic society, with huge growth avenues overseas. The banks they represent actually carry the credit risk, not MA itself.

2007 Dec 17 05:46 PM

[Mark Anthony:]

You need to buy PAL at current dirt cheap bottom price, especially because platinum and palladium rallied big time today on the Russian rumor whcih caused quite a bit of panic:

seekingalpha.com/artic...

2007 Dec 18 12:40 AM

[borisb:]

marvelous list!

2007 Dec 18 08:38 AM

[jonreagan:]

Great list; only place I'd disagree with you is on coal. The one other time I disagreed with your picks--and bought against my instincts--was on TSO, and I've still got a little indigestion on that one.

Would like to get your take at some point on the level of shorting/gaming/riggin... going on in this market. We all know it's a fact of life, but it seems to be at a fever pitch over the last couple of weeks.

As always, this was a really good article.

2007 Dec 18 12:26 PM

[TraderMark:]

John, I write about the latter point of your comment almost daily :)
There is a huge bias to big boys and I love things like huge amount of calls being bought right before a stock gets bought out and the SEC never looks at this. SeekingAlpha has some of my comments on these shenanighans. The "invisible hand" is hard at work propping up the market - apparently they only care about equity markets because bond markets are signaling a lot of bad things that you'd never see if you looked at an equity market that as of early last week was 4% away from all time highs. Anyhow, I do write about these topics quite often.

Good call oN TSO - I like FTO more as a refiner, but TSO was more of a Kerkorian play that did not work out. No one is perfect, nor close to it - the key is to let your winners run, and cut your mistakes quickly. I am out of TSO as of yesterday in fact when it spiked to near $50 (sold the other half $55 the day before Kerkorian pulled the plug on the 20% tender). My whole thesis there was oil prices would fall (which they did) from $100 and refiners would benefit from crack spreads widening... so the latter part of the thesis did not work out. It happens. :)

2007 Dec 18 01:02 PM

[TraderMark:]

As for coal, I think its turning from a North American commodity to global commodity. Coal and natural gas had not followed crude because they are traditionally more local commodities - so ebb and flow with US economy. Now as China sucks in more of the world's coal (and that will hold true if China GDP is 2% or 12%), with the high cost of shipping, and low dollar, the Europeans are really liking our coal off the east coast. Thats my thesis and until the price action dictates differently I am sticking with it. :)

2007 Dec 18 01:05 PM

[User 131403:]

al gore hates coal

2007 Dec 18 02:44 PM

[rdnk:]

Mastercard makes money each time a consumer pays by master card. So, it has no sub-prime or borrower issues.

2007 Dec 18 03:25 PM

[HarMegiddo:]

i think you missed ISRG. :)

2007 Dec 20 05:06 PM

[TraderMark:]

ISRG = good stock, valuation that makes me dizzy

2007 Dec 21 10:58 AM

[deepharbor:]

some post on this board don't seem to understand coal. China has a boatload of steam coal, the coal they are importing (and it is a lot) is met coal. It doesn't make any sense to me to have these coal stocks trade at double or triple the valuations of the oil stocks.

As far as STP it's down over 30% from Mark's post. But lot of the momentum plays he liked are down that much.

2008 Jan 18 03:14 PM

[TraderMark:]

And the title of the post is? :)

2008 Jan 19 01:17 PM