August Correction Reveals Market’s Favorite Stocks

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays.

One thing I relish when the market undergoes a nasty correction, as it has in the past two weeks, is that after every stock has been washed, rinsed and gone through the spin cycle, we get a clear idea of which stocks are the best to own going forward.

In a sell-first, ask-questions-later market landscape that has high-frequency algorithm trading programs going nuts, it truly pays to take special note of those stocks that are what I call the “institutional darlings.” A late-stage bull market is like a marathon race where, at the beginning of the race around March 2009, the entire pack of stocks are bunched together.

As the race gets into the latter stages, call it the 20-mile marker, the pack of stocks leading the rally has greatly thinned out to where there is narrow leadership. As the market emerges from the current August correction, as I believe it will, the number of stocks hitting new all-time highs and outperforming the S&P 500 will be reduced.

There is also a greater move to own big-cap, blue-chip stocks where price-to-earnings (P/E) ratios matter. Very few stocks will get away with having superior top-line growth, but no earnings to speak of. The ground under the market has shifted and earnings growth will begin to matter more following the kind of shakeout investors have just endured. There still will be plenty of high-beta stocks that will trade higher, but only if they held their crucial technical support levels during the current washout.

Professional money is also paying super close attention to those stocks that not only exceeded second-quarter sales and earnings estimates, but also provided solid upside guidance for the third quarter and for full-year 2019. Plus, those stocks that have the luxury of dominating their space also will maintain a strong institutional fan base in some of the hottest secular themes such as 5G technology, Internet of Things (IoT), artificial intelligence (AI), digital advertising, space wars, mobile e-commerce and advanced medicine. It sounds like a lot, but the field of players has definitely narrowed.

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If the world is going to upgrade their smartphones to 5G, a natural big money favorite is Apple Inc. (AAPL). The company that stands to deliver the most utilized 5G internal technology is Qualcomm Inc. (QCOM). Software and the cloud means owning Microsoft (MSFT), communications among devices belongs to Texas Instruments (TXN), space wars technology falls in the wheelhouse of L3Harris Technologies (LHX), solving widespread forms of cancer is rapidly becoming the area of Merck & Co. (MRK), while the favorite among all the great fintech companies is Visa Inc. (V). The best value among general retailers is Walmart Inc. (WMT), but among specialty retailers it is Starbucks Inc. (SBUX). In the consumer staples space, the king is Nestle S.A. ADR (NSRGY).

While there are many other names that other market analysts would supplant or substitute for these top 10 stocks, having seen them perform during the eye of the recent market storm sends a clear message to me as to which stocks I can trust to withstand rough market waters and push higher on solid fundamental and technical metrics. These and other stocks not mentioned are in a special club after surveying the recent market correction carnage.

My Instant Income Trader advisory service trades bull-call spreads on these stocks and other expense stocks that can tie up a lot of capital if one were to own all 10 names noted. I recommend the Long-Term Equity Anticipation Securities, or LEAPS, on the highest quality stocks where an investor can control a $1 million stock portfolio for between $50K-$100K for the next 18-24 months while selling out of the money short-term covered calls against the underlying LEAPS.

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We just booked a 62% gain last week in closing out our position in L3Harris Technologies (LHX) with a holding period of just 28 days, and I plan to get back into LHX at the right time, at the right price because it is one of the institutional darlings that big money wants to own. The bull-call-spread strategies I recommend are designed to deliver 35-65% gains on only the crème de la crème stocks. Click here to get up to speed on Instant Income Trader. I created it for the savvy investor who wants to leverage the finest names in the market without the use of margin and have plenty of time for their trades to work.

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