Now that we have that ugly pull-back out of the way, we can focus our attention on what to own moving forward.
The S&P 500 is still negative for the year and yet earnings are strong and economic growth is positive. That means stocks are cheaper than they were at the beginning of the year.
Thomas Lee, Chief Equity Strategist for JPMorgan (JPM), has a 2075 target on the S&P 500. That’s a 13% move from Friday’s closing prices. If indeed that target is reached, there will be some big profits to be had. Some stocks are likely to do even better than the index.
The bears are getting slaughtered, calling for a market downturn that never comes.
While a 13% gain from here pales in comparison to the gains made in 2013, they are still way ahead of other investment classes.
Lee is believes that the bull market is in the middle innings.
Instead of trying to time the market – something that is impossible to do – it is far better to own stocks at cheap prices. Let them appreciate as they are likely to do. Jumping in and out of stocks is a sure-fire way to lose money.
In this market it will pay to be long and strong. So, what should we be buying and holding today?
Here are five stocks to buy that should exceed the major market indexes for the remainder of the year:
Micron (MU) is a microcosm of the entire market. Its shares soared in 2013. The gains were so large that many are betting against this company. Even more are betting on the stock.
DRAM prices have firmed in such a way that profits are flowing and growing. The stock is in the middle innings and I want to own this one to $30 per share. Analysts expect the company to grow profits by 20% from the current fiscal year ending August 30, 2014 to the next. At current prices, shares trade for 12 times current fiscal year estimated earnings.
As the U.S. economy emerges from a long slumber, pent-up demand for construction projects will spur strong profit growth for equipment maker Manitowoc (MTW). Analysts are looking for 20% profit growth this year and even more than that in 2015.
At current prices, shares trade for 17 times 2014 estimated earnings. At these discounted prices investors are getting a steal. A 13% move in the major indexes should equate to a 20% move here or more.
Navy ship builder Huntington Industries (HII) is a great stock to own in the current economic environment. Stability in Washington means no worries about budget cuts. Building ships adds to the economy and with constant global instability the demand will always be there.
Analysts expect Huntington to grow profits by 35% in 2014. At current prices, you can buy that growth for 16 times 2014 estimated earnings. That’s a steal and could result in a 30% move higher between now and the rest of the year.
Shares of Arris Enterprises (ARRS) jumped last week after Comcast (CMCSA) announced a bid to buy Time Warner Cable (TWC). That deal put Arris in the spotlight as its technology is likely to be a key component in the cable industry’s fight to keep customers from cutting the cable.
There is huge growth potential here and that’s why the stock deserves a premium valuation. Analysts expect Arris to grow profits by 32% in 2014. At current prices, shares trade for only 13.5 times 2014 estimated earnings. To the extent economic growth is better than expected this year, this stock could double in value from current prices.
Predictably, airline stocks struggled last week. The winter that has gripped much of the nation produced more havoc last week, resulting in cancelled flights and other chaos. Investors used the weather as an excuse to lock in profits for what has been one of the best industries to own in the last year plus.
I’d use the weakness as a reason to buy shares at current prices. The airline industry is a money-maker with or without weather-related delays. When this weather passes, the money printing will continue. Analysts expect American Airlines (AAL) to grow profits by 59% in 2014. You can buy that growth for just 7 times 2014 estimated earnings. Buy, buy and buy some more.
Written by Jamie Dlugosch