Tips for Picking Stocks in a Nasty Market

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a cura di Kathy Kristof, Kiplinger’s Personal Finance

Make volatility your friend. The summer swoon un – settled stock investors, but it was a great opportunity for those who were prepared, says Hugh John – son, a money manager in Albany, N.Y. Johnson used the downturn to snap up shares of such high- quality companies as Apple and Target.

Stock market volatility is likely to persist for months, which means you’ll probably get more opportunities to buy at discounted prices. So assemble a list of stocks you’d like to buy but can’t because they’re too expensive. Take Apple. At a recent price of $115, the stock was 15 percent below its record high of $135. You might conclude that Apple is still too pricey but you’d be happy to own it at $100 per share. Add it to your shopping list, and don’t be surprised if it hits your buy price; the stock traded as low as $92 on August 24, the day the market experienced a mini crash.

Volatility can work both ways. If the market zooms back up, lighten up on your holdings, sug – gests Jeff Knight, head of global asset allocation at Columbia Threadneedle Investments. “Con – ventional wisdom tells you to buy and hold,” he says. “But there’s nothing wrong with selling when the ongoing investment potential is no longer compelling”.

Look for revenue growth. Over the long term, stock prices track corporate profits. But com – panies can goose earnings per share by cutting costs and buying back stock. If you want to make sure you’re investing in a company capable of generating sustainable growth, focus on the top line: revenues. Unfortunately, companies with rapidly expanding sales often trade at stupendous valuations. To find fast growers selling at fair prices, we asked FactSet, a research firm, to filter for members of the S&P 500 with market values of at least $10 billion that are expected to generate sales growth of at least 5 percent both this year and in 2016 and whose stocks trade for less than 20 times estimated year- ahead earnings.

The screen uncovered 61 firms. Many were in the health care sector, including CVS Health, Allergan, and biotech leaders Amgen and Gilead. One name on the list outside of health was consulting hotshot Cognizant Technology Solutions. It sells for just 20 times estimated year-ahead earnings, even though analysts expect revenues to increase by 21 percent this year and 14 percent next year. Likewise, Skyworks Solutions, a maker of smartphone chips, sells for just 14 times projected year-ahead earnings, yet analysts see sales jumping by 14 percent in the fiscal year that ends in September 2016.

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