I set out to examine if the pundits that are crying out 'buy the dip' is really actionable by prudent investors that will pay only a fair price even in falling market conditions.
I setup a screen using my fidelity brokerage account looking for US stocks that have dipped further than the broader S&P 500 index over the last 5 days. In addition, I also setup the screen to look for quality in Balance Sheet and Income Statement by selecting a few variables that equity holders cherish. Finally, I limited the screen to show only those stocks that sport a Price/Earnings ratio less than the broader S&P index with a projected minimum growth in earnings of 10% over the next 12 month period. My screening parameters were set to:
- Only look for US Common stock, exclude ADRs and REITs
- Market Capitalization > 2.6B which is the minimum capitalized stock in the S&P 500 index
- Exclude the Energy sector, since this author believes energy stocks have other idiosyncratic variables including the price of oil and commodities that impact their prices
- Balance Sheet metric Debt/Equity must be less than 1 to give equity holders a majority upside
- Income Statement metric Profit Margin must be at least 10% to ensure decent margin for the trailing twelve months
- Projected earnings growth over the next 12 months must be at least 10%
- Price performance must be worse than the broader S&P 500 index over the last 5 trading days (i.e. price performance < -8.5% which is how much the broader index fell over the same period)
- Price Earnings ratio must be less than 24 (which is what the S&P 500 index is trading at)
Screen result is shown below:
I was surprised to see just a handful of what I would call 'buy the dip' opportunities. Obviously, these are worth further consideration and analysis for long term investors, but I will be watching for more such opportunities as the markets continue to course through this correction.
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in YELP over the next 72 hours.
Additional disclosure: Nothing on this post should be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security. Nor is it intended as investment, tax, financial, regulatory, or legal advice. Investors should seek professional advice pertinent to their own particular situation. All information on post is intended to inform investors in a consultative capacity.