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Wed, July 15 at 7:00PM ET

2 Buys Before the Pullback Begins

Expect markets to soften for awhile after a strong run this year

At just two days into the fourth quarter, we’re already up 15% on the S&P 500 and well over 20% on the NASDAQ year to date. We’ve had quite an impressive run so far this year despite the tensions at home and abroad that had some investors wary.

Now, as I look ahead to the final few months of the year, I’d like to map out the market activity I see ahead and tell you how you can position your portfolio to benefit of the ups and downs we’ll see before the year is up.

Let’s start with the “downs” I see ahead. With all the ground the market has gained this year, I want you to be prepared for a short-term pullback in the coming weeks. After such prolonged forward momentum in the markets, it’s natural for stocks to come down a bit.

So, while I do expect us to experience some selling, it’s nothing to worry about. Even if we do see a pullback of 5% to 8%, we’re still in great shape to finish the year up 15% on the S&P.

While I definitely want you to be ready for a pullback in the next few weeks, I don’t see the downside pressure lasting into 2013. I know you’ve heard a lot of negative talk about the fiscal cliff, and we discussed my thoughts on this in-depth last week, but I am still bullish on market activity in the final weeks of the year and into 2013.

For one, keep in mind that presidential elections are historically good for stocks. So while we’re likely to see stocks trend downward in the near-term, momentum following the election in November could return enthusiasm to the market into the final few weeks of the year. And December also happens to be the busiest shopping season as well as a time when bankers speed up mergers and acquisitions. Added consumer spending and hot corporate deals both make great fuel for the fire and should serve to spur buying pressure come year-end.

On a very near-term basis, I’m also watching Friday’s U.S. employment report to see if we do get the 120,000 jobs added that analysts expect. With excitement from the Federal Reserve’s QE3 announcement still lingering below the surface, even a slight bump to the monthly jobs count could rally shares.

But even if the report does impact the market, I see this being a short-term blip only. What I really want you to focus on right now is getting into the right stocks that will weather any volatility ahead and pop with the market as we close out the year.

So let’s take a look at two stocks that still have plenty of room to run. I like these names because they are in niche sectors and will do well in pullbacks.

Go where the money goes:

That’s the key for my first pick, CableVision Systems (NYSE:CVC). Some of you might not give this stock a second look because of the company’s debt, but I see opportunity here as dollars pour into cable companies this election season, and CVC plans to address its debt by offering $500 million in 10-year senior notes.

Long-term, I’m looking at CableVision because it’s a great takeover target from bigger competitors in the cable segment, which is already a hot sector for consolidation. As one of the nation’s leading cable companies, CVC has exposure to desirable territories like the New York metro area.

It also recently inked a multi-year deal to carry NFL Network and the NFL RedZone channel. I wouldn’t be surprised to see a merger in CableVision’s future, and in the meantime investors can enjoy some income through the stock’s +3% dividend yield.

Take the money

Speaking of income, you can’t go wrong with True Religion Apparel (NASDAQ:TRLG), a trendy retailer that boasts a 3.85% dividend yield. It’s a solid buy for investors looking to get some income, and the stock has plenty of growth potential in the near- and long-term.

TRLG hit some bumps earlier in the year when it was overly aggressive with the pace of change for its spring/summer season, but I like what the company has since done to get back on track. TRLG has built a strong foundation for both women and men, and management’s new, balanced approach between core styles that are familiar and liked by customers, in addition to new fashions, is being well received by customers.

And unlike some of its competitors, the brand has a “hip” global appeal that will help it succeed in its international expansion efforts.

Finally, at current levels near $20, the likelihood that small-cap stocks will perform better in the final quarter of the year (they’ve underperformed large caps in recent run-up) is high, and I look for a strong finish with this name toward year-end.

In the meantime, take the money.

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