I have a new column up at Real Money: Nine Stocks for Playing the Long Side Safely
It is based on our response to a request from research clients, managed asset accounts, and institutional traders, who have all asked some variation of this question:
"I am afraid this market is overvalued, over-extended, and
overdue for a major correction — but I want to play from the long side
(variation: I cannot afford to fall behind my benchmark). How can I
participate in a way that is relatively safe, but still allows me
The response we crafted was to quantitatively screen stocks for these characteristics:
1) Identify strong sectors with good money flow;
2) Screen for stocks with the best technical and fundamental potential;
3) Look for stocks within those sectors with desirable risk/reward characteristics;
4) Find stocks that are near good entry points;
5) Avoid the "runaway momentum" names;
6) Look for stop-loss protection that is a reasonable percentage downside away.
The column identifies nine firms, with entries, targets, and stop losses.
Before you yell "Capitulation!," understand that this was in response to client requests. I continue to have
concerns about a laundry list of economic problems: inflation, slowing
growth, slow job creation, rising interest rates, the drag from
The stocks and sectors I picked, however, are more likely to outperform on a
relative (as well as on an absolute) basis, especially if the economy
slows or slips into a recession. The key is identifying those stocks
that will participate at much lower levels of risk.
I’ll see if I can get it moved to the free site eventually . . .
Nine Stocks for Playing the Long Side Safely
6/8/2007 10:32 AM EDT