As important as it is to own the best stocks heading into the fourth quarter of they year, it is equally important to ring up your profits or avoid buying stocks that have jumped up on gains unrelated to strong fundamental improvement. These story stocks could be turnaround candidates with weak fundamentals or stocks with a high short interest that caused a short covering rally. Whatever the reason, these stocks are higher and attracting attention from investors who probably should be running in the other direction.
As I mentioned previously, Wall Street could see a lot of volatility as a result or pronouncements and posturing from the nation’s capital. There will be not one but two long-winded discussions about a government shutdown related first to the budget and then about the government debt ceiling. By no means have we heard the last of taper talk, and that tends to get the markets gyrating as well. Of course, as wet closer to the end of the year, I would not be surprised to see market participants get a little jumpy about the transition of power at the Federal Reserve. Owning the wrong stocks in a jumpy market can cause serious losses as we finish up the year — good thing we have Portfolio Grader to sort through them.
Fluor Corporation (FLR) is one of the world’s leading heavy construction and engineering firms. I don’t want to imply that this is a bad company because it is actually a very good one. However, Fluor has divisions including Oil & Gas, Industrial Infrastructure, Government, Global Services and Power. Virtually all of them are seeing limited spending as a result of the global slowdown and reduced government spending around the world. The stock is up more than 23% this year, but earnings are actually down on flat revenues. Analysts have been lowering their estimates for the rest of this year as well as 2014, and the stock is currently rated as a “sell” by Portfolio Grader. When the economy recovers, I expect will see this company’s fundamentals improve substantially … but until that happens investors should avoid the stock.
Stanley Black and Decker’s (SWK) shares have had a nice year and have been red hot in the last quarter. The stock has jumped ahead by about 18% in the last three months, bringing the year to date return up to 22%. However, earnings this year are down compared to 2012, and consumer spending is losing steam at the same time the housing recovery is stalling. The stock was downgraded to a “D” ranking in Portfolio Grader this week and will remain a “sell” until fundamentals improve to match the story.
Pundits will posture and predict all sorts of things for the final three months of the year, but if you stick to the best stocks and avoid the worst you should avoid the noise and finish the year strong.
Louis Navellier is Editor of Blue Chip Growth.