Profiting from a market sell-off … what to expect tomorrow … one sector to watch … three specific plays dug up by Louis Navellier’s numbers-approach
As Americans head off to the polls today, nearly 99 million early votes have been cast (as of last night).
That’s about 72.3% of the entire turnout in 2016. It represents roughly 40% of all Americans who can participate in the U.S. election.
Given these numbers, we can say one thing with certainty …
A study from the American Psychological Association just revealed that 68% of U.S. adults describe the 2020 presidential election as a source of stress. This is much higher than the 52% of voters who reported feeling this way in 2016.
Though we don’t know how the presidential election will shape up, this degree of frayed nerves and heavy voting suggests a substantial market selloff tomorrow isn’t a bad guess — regardless of which candidate is voted in.
So, while we hope tomorrow ushers in a massive bull rally, today, we’re going to prepare to benefit from a massive overreaction.
***A three-part game-plan
First — anticipate volatility.
Earlier this month, we featured historical research from our technical experts, John Jagerson and Wade Hansen, on this topic.
Here is what they wrote about the tendency for the stock market to suffer a short-term overreaction following a presidential election:
The overreaction is most likely based on the tendency for traders to “sell the news” and overshoot a correction.
The historical data seems to point towards a likely positive outcome regardless of which party controls the White House.
We suspect that we may get some feedback from readers about the dire consequences of a “socialist, liar, swamp-dwelling career politician, bankrupt mogul, etc.” being elected (or re-elected).
We have heard the same thing for each election and we will continue to bet on Americans to use innovation, industry, cooperation and hard work to continue pushing the economy forward regardless of who wins.
So far, putting our faith in the American people has played out well.
Second — zero in on a sector that is poised to generate massive returns over the next decade. Given growth forecasts, a selloff tomorrow would actually be little more than a wonderful sale price from a longer-term perspective.
For this step, we’ll borrow from our thematic and technology expert, Matt McCall.
Below is a tweet from Matt last week, identifying the two sectors he’ll be buying if the market nosedives after the election.
If you have trouble reading the below, he points toward housing and biotech.
Of these two, today, let’s focus on biotech.
And that brings us to step three …
Within the biotech sector, we’ll use quantitative measures to identify specific stocks to add to our portfolio if we get a sell-off.
For this, we’ll turn to famed quant investor, Louis Navellier
As he recently wrote:
If you’re worried about the presidential election having a lasting negative impact on your portfolio, don’t be.
Sure, it might get a little bumpy, but the long-term trend for the stock market continues to point up.
Instead, now is the time to focus on which stocks you should be investing in.
So, which biotechs fit the bill?
Let’s find out.
***Following the numbers to find the strongest biotech
From a sector perspective, biotechs are enjoying a strong 2020 relative to the broader market.
Below is a chart of IBB, the iShares Nasdaq Biotechnology ETF. It holds many household biotechs you’ve likely heard in the news this year, including Gilead, Regeneron, and Moderna.
As I write Tuesday morning, it’s up 10% on the year, which far outpaces the S&P’s 4.4% return.
Of course, niche sectors within biotech are absolutely soaring.
Take genomics. Below, we’ve added the ETF, ARKG, with is the ARK Genomic Revolution ETF.
It’s up 97% on the year.
As you can see, there’s a wide range of returns under the general catch-all of “biotech.”
***So, how do we find the best biotechs?
Well, if we’re investing with Louis, the answer is easy.
We just follow the numbers.
Here’s what that means, directly from Louis:
I’m a numbers guy. Always have been. Since I was a kid, I’ve loved math and I knew that math was the right way to understand the world.
Said another way, I depend on evidence for my decisions.
I depend on an objective set of criteria that signals what I should buy, when I should buy it, and when I should sell and collect the profits.
Now, in recent days, many biotech companies have been releasing their earnings numbers. And at face value, these are companies we should consider buying in a sell-off.
So, let’s see what Louis’ numbers approach is telling us about them.
From Louis’ Market 360 issue on Saturday:
Many biotech and healthcare stocks are releasing their earnings reports this week, which includes more well-known pharmaceutical stocks like Pfizer (PFE), Gilead Sciences (GILD) and Moderna (MRNA).
So, let’s take a quick look at their earnings results.
After a brief walk through the numbers and some commentary, Louis runs these three stocks through his Portfolio Grader tool.
For newer Digest readers, the Portfolio Grader tool is a free, fantastic way to get a fast snapshot of the fundamental quality of a specific stock.
It’s rooted in Louis’ objective, numbers-based approach to the markets. It analyzes a stock by eight fundamental criteria — things like sales growth, earnings momentum, and cash flow.
Here are the biotechs through the Portfolio Grader:
Back to Louis:
All three companies receive low marks for their Fundamental Grade, which isn’t surprising given the mixed third-quarter earnings reports.
So, if you’re interested in high-growth biotech companies with superior fundamentals, you’ll want to consider looking elsewhere.
My Growth Investor biotech stocks — DexCom, Inc. (DXCM), IDEXX Laboratories, Inc. (IDXX) and Quidel Corporation (QDEL) are a great place to start.
They also reported their earnings results this week, and I’m pleased to say that they all knocked it out of the park.
***The three biotechs Louis likes today
In Louis’ update, he gives a brief overview of each company.
Quickly summarizing …
DexCom has been innovating the continuous glucose monitoring (CGM) industry since 1999. DXCM crushed analysts’ earnings and revenue estimates for the third quarter and, in turn, increased its full-year outlook.
IDXX is a leading provider of veterinary products and services. Shares of IDEXX Laboratories, Inc. surged last Thursday to a new 52-week high of $453.20 after the company posted double-digit earnings and revenue growth for its third quarter.
And Quidel Corporation develops diagnostic testing solutions that provide quick test results and, in turn, reduce healthcare costs and improve patient outcomes.
For the third quarter, Quidel achieved total revenue of $476.1 million, up 276% from the $126.5 million in the same quarter a year ago. Third-quarter earnings surged 725.7% year-over-year to $5.78 per share, compared to $0.70 per share in the third quarter of 2019.
So how do these biotechs look through Louis’ Portfolio Grader?
Back to Louis for more commentary:
Not only do these Growth Investor biotech stocks rank better than PFE, GILD and MRNA overall, they have outperformed them, year-to-date, too …
This is what happens when you invest in the fundamentally superior stocks.
And this is just biotechnology. My Growth Investor Buy Lists are chock full of stocks from other sectors with similar potential.
I have 43 stocks on my Growth Investor High Growth Buy List that range from technology to insurance to retailers and much, much more.
With voters so invested in the outcome of this election, we should expect significant market volatility this week …
At the same time, history shows this volatility tends to be an overreaction that investors can trade for profits …
Longer-term, an overreaction will be nothing more than a price-discount for elite market sectors, one of which is biotech …
Within biotech, we can use Louis’ numbers approach to identify three specific biotechs that should be strong contributors to a portfolio going forward — DexCom, IDEXX, and Quidel.
If you’re looking for a way to trade tomorrow, there’s your roadmap.
Have a good evening,