Down yesterday, up today. The stock market continues to bounce around as investors react to earnings results released by JPMorgan Chase (JPM) and Wells Fargo (WFC)–and a better-than-expected turnout for the holiday shopping season in the December retail sales report. Earnings season is in full swing and the market is swinging accordingly.
What we are seeing are rotational corrections under the surface, as money flows from one type of stock to another. I don’t see a major correction as very likely because of all the money flowing into the stock market. But I wouldn’t be surprised to see some bumpiness around mid-February as the fourth-quarter earnings announcement season winds down. While this will present a good buying opportunity for the nimble, this also means that it’s time to watch out for what I like to call “slippery slope” stocks. More on that in a moment.
The best way to prepare for hedge against volatility is by realigning your portfolio for maximum performance. If you want to avoid many of the headaches that come with summer trading, start by trimming the dead weight in your portfolio. Ensure smooth and steady returns by sticking with more conservative stocks.
And you can do this by checking your stocks in Portfolio Grader. When you run your holdings through this screening tool, take note of each stock’s Quantitative Grade (the current level of institutional buying pressure) and each stock’s Fundamental Grade (a weighted blend of eight financial metrics). Also check which of your stocks are rated as Conservative, Moderately Aggressive or Aggressive. Shoot to have 60% of your holdings in Conservative stocks, 30% in Moderately Aggressive and 10% in Aggressive.
I can’t stress this last point enough because aggressive stocks are the first one to take a beating in a correction, so you’ll want to limit your exposure to these "spicier" stocks. To get you started, here are 10 aggressively-rated stocks you’ll want to steer clear of in the coming months.
|Symbol||Company Name||Quantitative Grade||Fundamental Grade||Total Grade|
|ABX||Barrick Gold Corporation||F||D||F|
|AVP||Avon Products, Inc.||D||D||D|
|CTXS||Citrix Systems, Inc.||F||C||F|
|DB||Deutsche Bank AG||F||D||F|
|DHI||D.R. Horton, Inc.||F||C||F|
|KGC||Kinross Gold Corporation||F||D||F|
|RAX||Rackspace Hosting, Inc.||F||D||F|
|SLW||Silver Wheaton Corp.||F||D||D|
|ULTA||Ulta Salon, Cosmetics & Fragrance Inc.||D||C||D|