What to Buy and Sell After the Coronavirus Sell-Off

Every weekend, I use my Portfolio Grader to rate nearly 5,000 stocks. The weekly rankings, “A” through “F,” are routine – but they’re especially significant after a week like the last one!

With the major indexes swinging wildly 3%, 4% in either direction, financial journalists’ top priority is to make sense of it all. Narratives are emerging…but do they have any support in the data? Well, let’s take a look.

Biotech, certainly, is getting a lot of attention. After all, the lack of a vaccine or treatment for the COVID-19 coronavirus has the world in a panic – and these are the companies who are racing for the cure.

However, it’s not as simple as buying up any and all biotech stocks. (If only it were that easy.) For example, Eli Lilly (LLY) lost its “Buy” rating in the February sell-off.

While LLY still ranks a B for its Fundamental Score, its Quantitative Score fell to a C. This is the single most important factor in a stock’s Total Grade, and the subject of our discussion last Wednesday at the Breakthrough Stocks Summit. I decided to take the rare step of publicly sharing what my Quant Score measures, and you can click here for the recording while it’s still available. Since it’s, essentially, a momentum indicator, a stock’s Quant Score is particularly telling in such a volatile market.

Gilead Sciences (GILD), on the other hand, passes that particular test. GILD, which has an antiviral medication that’s being tested on patients infected with COVID-19, earns a B for its Quantitative Score, contributing to a Total Grade of B. That makes GILD a “Buy” in my Portfolio Grader, up from a C-rated “Hold” the week before. Below are the notable upgrades and downgrades among biotech stocks last week:

Takeda Pharmaceutical’s (TAK) Quantitative Score of D points to another current narrative: “Avoid exposure to Asian economies.” While outbreaks are happening worldwide, nearby South Korea has the most confirmed cases of COVID-19 outside China, where the coronavirus outbreak originated. Japan has hundreds of cases as well.

Coronavirus aside, it’s not a bad strategy to focus primarily on U.S. investments. I’ve made it clear in my writings that the United States is the oasis around the world, with strong economic growth and decent bond yields. Our Fed certainly threw everyone for a loop this morning by cutting interest rates a day early, but they did the right thing, and gave Wall Street what they wanted.

I expect Friday’s jobs report to provide further evidence of the United States’ strong position in the global economy. However, that doesn’t mean that you won’t find great growth investments elsewhere. And that includes China.

For instance, JD.com (JD) gets top marks of A for its Quantitative Score. And that was even before the Chinese e-commerce company turned in a nice earnings beat on Monday. JD made $0.08 earnings per share in the fourth quarter, whereas analysts had expected $0.07. Revenues of $24.5 billion were also better than expected, and were nearly 27% higher than the fourth quarter of 2018.

JD.com is also expecting year-over-year gains in first-quarter revenues, despite the impact of the coronavirus. In fact, JD.com’s investments in robotics and self-driving cars are currently coming in handy there. JD used its autonomous fleet to deliver necessary goods to a hospital in the Wuhan province. This isn’t the first time the e-commerce company has applied this type of innovative technology to improve logistics. During the Chinese New Year celebration in mid-February, it used drones to deliver gifts throughout rural areas.

But don’t stop there. If you want the best growth with the least risk, build a portfolio of stocks with increasing operating margins, increasing sales growth, high returns on equity, strong cash flow and high marks from my proprietary Quantitative Score. For a look at what exactly this measures, see the replay of Wednesday’s Breakthrough Stocks Summit, where I also shared my #1 small-cap stock for February.

My #1 Breakthrough Stock is holding up extremely well in this market decline. In fact, it’s now achieved a 75% gain in the past month – much of that in the past two weeks!

Sometimes people worry that small-caps are “too risky.” But if a stock qualifies as a “Buy” in my Portfolio Grader, it’s actually LESS risky than the broad market (as I explain in the recording of my Breakthrough Stocks Summit). Whereas the major indexes are now down 4%-9% for the year-to-date, my Breakthrough Stocks are up 5%, on average. My Top 5 Stocks for February are up more like 45%!

And on Friday, I’ll be releasing my Top 5 Breakthrough Stocks for March in our Monthly Issue. I’m also preparing a hot new buy for the issue, only for Breakthrough Stocks subscribers. So, now is the time to check out the free Breakthrough Stocks Summit, which includes an invitation to join us at Breakthrough Stocks and get the full buy list.

Note: My buys are NOT going to include any of the stuff that rallied recently – but doesn’t measure up in terms of quality. I just want to see how the best stocks do. The main thing we want to see going forward is less volatility and downside pressure. It’d actually be great to see a retest of the lows, because then we figure we’ll be thrashed around less going forward.

In Breakthrough Stocks and my other services, I’ll be sounding the “all clear” signal as soon as is prudent. I hope to have you join us soon. I’ve been doing this for 40 years, and I’m here to tell you: We have a lot to look forward to in the coming months.

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