Prepare Yourself for The Worst from the Fed

Before you do anything else today, I want you to mark May 23, this Wednesday, on your calendar. That’s because at 2:00 PM EDT, the Federal Open Market Committee (FOMC)—this country’s principle organ of monetary policy—releases the minutes from its latest meeting. If you have any money in the stock market, you’ll want to take note of what the FOMC has to say.

That’s because Wall Street remains obsessed with just how long the Fed will keep its money pump on. Last month, the Dow rallied over a hundred points following the latest FOMC minutes. And each time the Federal Reserve has announced plans to ramp up its stimulus policies—like when it instated a fresh round of Quantitative Easing last Septemberand when it introduced Operation Twist last June—the major indices have soared.

Essentially, the current Fed policy gives Corporate America the green light to rush to the bond market and borrow at ultra-low rates and put the cash towards aggressive stock buyback programs or dividend increased. This corporate buyback frenzy will likely persist as long as the Fed continues with its $85 billion per month in Quantitative Easing. So many investors are banking on the continuation of the Fed’s zero-interest rate policy.

There’s no doubt that this accommodative central bank policy propels the stock market higher. Even so, I have been doing this for a long time and know that it is important to stack the odds in our favor. Especially now that just last Thursday, San Francisco Fed President John Williams indicated that Quantitative Easing may be reduced soon. Williams pointed out that the pace of job growth has picked up, so the Fed may tap the brakes. This is significant because Williams is the first “dove” on the board to openly admit that a slowdown may be coming.

I suspect the Fed will have an official statement soon, clarifying when and if it might reduce its bond buying. So with the FOMC minutes coming up, we need to prepare ourselves for however Wall Street may react. A good place to start is by reviewing the 46 big blue chips that have been upgraded and downgraded this weekend. After taking a close look at the latest data on institutional buying pressure and each company’s fundamental health, I decided to revise my Portfolio Grader recommendations for each of the stocks listed below.

Upgrades

Last Week’s Holds, Now Buys

Symbol Company Name Quantitative Grade Fundamental Grade
DAL Delta Air Lines Inc. B C
DG Dollar General Corp. B B
DOV Dover Corp. B B
EMN Eastman Chemical Co. B B
GPC Genuine Parts Co. B C
KMI Kinder Morgan Inc. B C
KYO Kyocera Corp. ADS B C
MA MasterCard Inc. Cl A B B
MTB M&T Bank Corp. B B
ORLY O’Reilly Automotive Inc. B B
ROP Roper Industries Inc. B B
SPG Simon Property Group Inc. B C
UAL United Continental Holdings Inc. B C
UTX United Technologies Corp. B B
WDC Western Digital Corp. B B

Last Week’s Sells, Now Holds

Symbol Company Name Quantitative Grade Fundamental Grade
AGU Agrium Inc. D C
APD Air Products & Chemicals Inc. D C
CF CF Industries Holdings Inc. D C
CHU China Unicom (Hong Kong) Ltd. ADS D B
LVS Las Vegas Sands Corp. D B
MET MetLife Inc. D B
MFC Manulife Financial Corp. C C
NTAP NetApp Inc. D B
QCOM QUALCOMM Inc. D B
RDS.B Royal Dutch Shell PLC ADS D C
RL Ralph Lauren Corporation D B
TTM Tata Motors Ltd. ADS D C
VIV Telefonica Brasil SA ADR D C

Downgrades

Last Week’s Buys, Now Holds

Symbol Company Name Quantitative Grade Fundamental Grade
ABT Abbott Laboratories C B
BAC Bank of America Corp. B C
ENB Enbridge Inc. C C
GM General Motors Co. C C
HES Hess Corp. C B
MO Altria Group Inc. C B
NKE Nike Inc. Cl B C B
RAI Reynolds American Inc. C B
VRSK Verisk Analytics Inc. Cl A C B
XEL Xcel Energy Inc. C C

Last Week’s Holds, Now Sells

Symbol Company Name Quantitative Grade Fundamental Grade
AMTD TD Ameritrade Holding Corp. D C
CCL Carnival Corp. D C
CRM salesforce.com inc. D C
CSX CSX Corp. D C
NSC Norfolk Southern Corp. D C
SO Southern Co. D C
TOT Total S.A. ADS D C
XRX Xerox Corp. D B

Sincerely,

Louis Navellier

Louis Navellier

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