The stock market has gotten quite volatile over the last few trading sessions. Fears of economic weakness from China along with a weak ISM report on Monday have made traders a little jittery to say the least.
While I continue to think we will settle down and see the market get back on track, it is critically important right now to buy the very best stocks and avoid the ones with the type of weak fundamentals that could still post substantial declines. It may be rewarding to buy into the selloff in stocks, but only if you buy the ones that have the type of fundamentals that will attract buying pressure from the large institutional buyers.
I used Portfolio Grader this morning to look at the ratings for some of the largest, best-known companies that trade on the U.S. exchanges. These tend to be the most widely held stocks and the ones investors will be tempted to buy on down days in the stock market. Not all stocks are the same, even if they are large, well-known companies, so you have to be selective in your buying and avoid the very worst stocks.
There are some big stocks that you simply have to avoid right now no matter how attractive they may appear. Chevron Corporation (CVX) was downgraded to an “F” this week and is a “strong sell” right now. Phillip Morris International (PM) has been an “F” rating since August of 2013 and should be avoided even if the shares fall further in price.
IBM (IBM) is one of the best-known companies in the world, but its fundamentals have been subpar and the stock was downgraded to a “D” back in November. IBM stock is rated a “sell” right now. Walmart (WMT)is another stock that fans of blue-chip stocks might be tempted to buy, but two weeks ago the Portfolio Grader ranking fell to a “D” and the stock is currently a “sell.”
But things aren’t entirely dire. Some stocks, like Boeing (BA), are showing excellent fundamentals right now. The company just reported a 26% increase in net income and exceeded the analyst estimates by more than 20%. The company sold a record number of jetliners last year, and business is strong across the board. The stock was upgraded to an “A” back in August and is a stock that should be bought if it falls during a continued market decline.
Facebook (FB) was upgraded back in December, and the stock is a “strong buy” at the current price. Fourth-quarter earnings for the social media giant jumped up more than eight-fold compared to the year-ago period, blowing away analyst estimates. Fantastic fundamentals like these have allowed the stock to buck the trend and show strong price increases in the past week.
Investors need to be selective in buying into the recent weakness in the stock market. The large pools of money will be selling the weaker stocks and focusing on those with the very best fundamentals in the weeks ahead, and so should we.
Louis Navellier is the editor of Blue Chip Growth.