I want investors to be very, very careful right now. Not because of the pullback today – that’s no surprise, since previously this week we had the biggest market rebound I ever remember.
It’s because a lot of low-quality stocks actually performed incredibly this week.
That’s not a bad thing in and of itself. This is how bear markets end, with “short-covering rallies,” like the one we looked at yesterday.
But I don’t want you to be tempted to buy this stuff.
The worst-performing, most heavily shorted stocks don’t tend to have what it takes:
- Accelerating dividends. That’s going to be harder to find now. So are:
- Strong sales and earnings growth.
- Expanding operating margins.
- Positive outlooks, both analyst revisions and company guidance.
- And big earnings surprises.
This will rule out a lot of companies. But quality stocks will shine through. There are just big hurdles to overcome right now.
For one thing, consumer sentiment is now at a four-year low, per the University of Michigan preliminary data. And we just had the biggest drop in 50 years on that index.
So, this is why I’m waiting for guidance before committing new money to growth stocks. Hopefully we’ll get what we need in early to mid-April.
That brings me to my other “caution flag” for you. A lot of companies are suspending their forward guidance, because they don’t know what to expect. So, that may be why I’m not seeing all the analyst cuts like I’d thought, because no one knows what’s going on. The idea of restarting the economy by Easter is looking less likely; New York, for one, is probably going to be on lockdown well into May.
As for encouraging signs, one is that there’s been a lot of insider buying in recent weeks, as The Wall Street Journal reported yesterday. So, they obviously see the light at the end of the tunnel and know their stocks are good near-time buys.
My buy signal revolves around the analyst community. As I’ve been saying, I’m going to be watching them very, very carefully.
If I see analysts cut estimates, I’m probably going to have to cut growth stocks, get more concentrated, get more diversified. That may include international stocks, in places that are ahead of us in combating the coronavirus and accompanying global recession.
Whatever path presents itself, you can follow along with me at Platinum Growth Club, where I drill down to a single Model Portfolio of stocks from several buy lists. Click here to learn about my Model Portfolio, VIP chats and other member benefits to ensure you’re ready when the “all-clear signal” sounds.
As soon as health restrictions get lifted, I think you’ll see a lot of growth stocks really take off. I will let you know the best time to buy growth stocks – and, of course, how to pick them. In the meantime, enjoy the weekend.
Note: If you play your cards right, the opportunities we have in front of us today could be really profitable for you.
Though it’s not quite time for growth investors to jump in feet first just yet, it IS a good time to try out Platinum Growth Club.
I’ll be publishing our April Issue next week, where I’ll address investors who are looking to put some money to work soon.
Also, we’ve got an Open House going on now – ending Tuesday at midnight – so be sure to upgrade now.