Buffett Calls a Bottom on the Market — and So Do We

It was another down week for global stock markets, with the Dow Jones down 0.60%, the S&P 500 falling 0.75% and the NASDAQ down 0.81%. The MCSI Emerging Markets Index continued its relentless fall, tumbling another 2.69%.

The market’s recent correction has been as tough as we have had all year. This last week was particularly difficult, as you hit your stops on three positions. You were stopped out of the iShares MSCI BRIC ETF (BKF), Trinity Industries (TRN) and the iShares Transportation Average (IYT).

The sell-off in global stock markets has been particularly brutal, with the MSCI Emerging Markets Index down 9.43% during the past month. If you count the few days before then, emerging markets actually entered a technical correction, having dropped more than 10% from their peak. Commodities also have endured a similar pull back and are down over 13% during the past three months.

There is some light on the horizon, as the U.S. market bounced on the final two trading days last week.

Further good news is that Warren Buffett was buying his favorite stocks last Wednesday.

The last time I heard him make such a public declaration of his purchases was on August 8, 2011, when the market hit a bottom during the last real correction in the U.S. market.

Sure enough, economic news Friday was favorable, with September payrolls unexpectedly strong. The jobless rate dipped to 5.9%, although the participation rate in the labor market hit the lowest level since February 1978, when Jimmy Carter was president.

It is always tough to call the bottom of a market.

But I am going to suggest that you follow Buffett and buy back into U.S. stocks — specifically through your bullish bet on the iShares Transportation Average (IYT). I set out the investment case for this position just two weeks ago. With the U.S. economy strengthening, I believe the fundamental investment case for this recommendation remains intact. IYT actually ended in the plus column the last two trading days, far outpacing the broader U.S. stock market averages. And I believe its recovery should outpace the broader U.S. market in the weeks ahead.

So re-enter the iShares Transportation Average (IYT) and place your stop at $141.50. If you want to play the call options for potentially bigger gains, I recommend the January $155 calls (IYT150117C00155000).

Portfolio Update

Visa Inc. (V) closed the week flat. The majority of companies will carry some form of debt on their books to finance future growth. Visa is an exception to this, as it effectively has no corporate debt at all. This puts Visa in a very strong position to finance its future growth. V is a HOLD.

Flextronics International (FLEX) lost 2.76% last week. Looking at all the stocks on the NYSE and NASDAQ exchanges that fall into the printed circuit boards sector, FLEX takes the number one spot in revenue by a landslide. Flextronics currently has a whopping $26.96 billion in trailing 12-month revenue. FLEX took a convincing bounce higher from the mighty 200-day moving average (MA) last week. FLEX is scheduled to report earnings on Oct. 29, after markets close. FLEX is a HOLD.

Gilead Sciences Inc. (GILD) fell 1.72%. Gilead is planning to launch its hepatitis C medication Sovaldi in the near future, an actual cure for the ailment. And, this new launch could be a blockbuster for GILD’s bottom line as this medication will cost about $1,000 per pill. Gilead President John Milligan recently said that the price of other similar medications was the main driver in pricing Sovaldi. GILD is a BUY.

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