Going Gets Tough — Gone Shopping

Fear tends to manifest itself much more quickly than greed, so volatile markets tend to be on the downside. In up markets, volatility tends to gradually decline. — Philip Roth

Today is National Waffle Day.

And did the markets ever waffle. Although our focus is always on individual stocks, it was hard to ignore that the Dow Jones Industrial Average toppled from 16459.75 to 15370.33 at the open — a plummet of 6.6% before most people finished their morning coffee.

Apple (AAPL) opened at 105.76 and dropped to 92.00 — a swoon of 13.0% in a matter of minutes.

As we complete the update of our weekly batch, we’ll present a roll call of high-quality study candidates that could be worthy of pouncing — as the wafflers waffle. Our investing friends don’t let friends waffle because volatile markets often deliver out-sized opportunities.

Stocks to Study In A Volatile Market

We set a limit of Quality Ranking > 90 so that we’d be looking at only the excellent companies in our database — only those companies falling in the top decile of all companies based on ranking of financial strength, earnings consistency and relative growth forecast and profitability vs. peers/competitors.

There are number of reasons for this. If the correction deepens, it’s likely that the highest-quality companies will suffer smaller price drops. High company quality can be a life insurance policy. This is particularly true for companies with thin (low) profit margins if recessionary conditions develop. For poor quality companies, recessions can be fatal. (For more on this subject, review the high quality discussion of Arnold Bernhard’s 1958 Best Companies that we covered last year.)

Volatile markets can create opportunity because frankly, average investors do stupid things.

When asked, I’ve been urging young assertive investors with understanding and risk tolerance to shop assertively. One friend bought Apple (AAPL) in the low $90s this morning. One of our favorite market barometers ($USHL) has now entered “yellow light” cautionary territory and for those thinking capital preservation, it could make sense to convert lower-quality companies and/or low return forecasts to cash just in case we get another 25-40% price drop. Raising cash equivalents isn’t done so much for defensive purposes — because the swoon could stabilize and the secular bull market could trudge on. It really could be a situation of building reserves to take advantage of future opportunities.

• Cognizant Technology (CTSH) — Highest MANIFEST Rank
• Fresh Market (TFM) — Highest MANIFEST Projected Annual Return
• Joy Global (JOY) — Highest Low Return Forecast (VL)
• Joy Global (JOY) — Lowest P/FV (Morningstar)
• Fresh Market (TFM) — Lowest P/FV (S&P)
• Joy Global (JOY) — Best 1-Yr Outlook (ACE)
• Baidu (BIDU) — Best 1-Yr Outlook (S&P)
• Apple (AAPL) — Best 1-Yr Outlook (GS)

Note: The price targets from Goldman Sachs are from public releases and represent a partial sample. The price target is logged as of the most recent public analyst report. Although every effort is made to keep this information as current as possible, some of the ratings may not reflect more recent research and updates.