Mid-October Stock Basket: Buying the dips
By: Christopher Mistal
October 13, 2015
After putting up its best week of the year, the market is taking a pause to consolidate recent gains and evaluate earnings reports. For the week ending October 9, S&P 500 was up 3.3%, Russell 2000 gained 4.6% and DJIA was up 3.7% (second best of 2015). Technology was the laggard last week with NASDAQ advancing just 2.6% (seventh best week of 2015). Thus far, our Seasonal MACD Buy Signal issued after the close on October 5 has proved timely. We entered new long positions associated with our Best Six Months Switching Strategy during weakness last Tuesday and were rewarded with a fair portion of last week’s advance.
[DJIA Daily Bar Chart]
[S&P 500 Daily Bar Chart]
[NASDAQ Daily Bar Chart]
DJIA and S&P 500 have broken through resistance at their rapidly descending 50-day moving averages (solid magenta line), but NASDAQ came up short during the recent rally. For this rally to resume we are looking for DJIA and S&P 500 to hold above their respective 50-day moving averages or at worst dip and/or close just slightly below and for NASDAQ to “catch up”. Without NASDAQ leading the rally, a robust fourth quarter performance will become even more challenging for the market.
A Basket of Stocks for the “Best Months”
These 16 stocks all have reasonably solid valuations, healthy revenue and earnings growth, while exhibiting positive price and volume action as well as other constructive technical and chart pattern indications. The group of 16 covers a broad array of sectors and industries. It also runs the gamut of market capitalization with a mix of large caps with more than $5 billion in market value, midcaps in the $1-5 billion range, and small caps under $1 billion with one microcap for good measure to round out the diversity.
We first sifted through the universe of about 8,000 U.S. traded stocks for those with a market cap of at least $25 million and average daily volume of 50,000 shares or more on average over the past twenty trading sessions. Then we winnowed the list down to only those stocks with relatively low price-to-sales and price-to-earnings ratios. From there we looked for stocks that were exhibiting revenue and earnings growth.
With this list of about 50 stocks we dug into each individual company and chart before settling on these final 16 stocks. Our underlying theme was to find reasonably priced stocks quietly growing sales and earnings that are flying somewhat under the radar with few on The Street paying close attention to them. As market cap goes higher, this becomes increasingly challenging and a history of earnings surprises becomes even more important. 
At the end of the screening process we found that homebuilders, medical and financial industries were well represented in the basket. We did not search specifically for top-preforming stocks within these sectors, this just happens to be where reasonable value and solid growth currently exist.
This basket is being presented in order to take advantage of the “Best Six Months” (November to April) for stocks. Volatility is still present and we will look to add these 16 stocks, in the table below, on dips. We will allocate a hypothetical $2000 from the cash position in the portfolio to each position. For each stock we have provided the ticker, name, sector, general business description, plus annual sales growth, PE, price-to-sales ratio, market value, a dividend yield and a suggested buy limit and stop loss. 
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