Our Secret to the Biggest Gains During Market Corrections

When it comes to stock market corrections, the urge to sell and run for cover is completely understandable - but it's the wrong move.

Instead, when the going gets tough, the tough... go shopping.

Shopping after a market sell-off is absolutely critical to capture the maximum possible profits. Remember, the markets' powerful upward bias means corrections and even crashes will always pass into history, giving way to wealth-generating bull runs.

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To capture that inevitable upside, we recommend having a list - ready at all times - of quality, must-have shares to pick up at "fire sale" prices during sell-offs.

And today, our strategists will share some of their own market-correction shopping lists, and even how to lay "profit traps" to pick them up at the price you want.

William Patalon III, Executive Editor

One company I like right now is General Electric Co. (NYSE: GE), the industrial heavyweight that's in full-tilt turnaround mode. It represents almost all the qualities I'm looking for in a stock in this kind of market.

First, I like the stocks of companies that are tied into long-term trends, and whose share prices are poised to benefit from multiple catalysts.

And GE is poised to benefit from several solid catalysts. I've shared all of them with my paid-up Private Briefing subscribers, but I want everyone to be in on this.

Some of the most important forces forming up under GE shares are "growth triggers," and the sheer volume of "insider buying" that's been happening.

GE is in several growth segments: Aircraft engines, medical-imaging equipment, power generation, water treatment and, as a great special "kicker" - the "Internet of Everything" (IoE). Demand in each of those sectors is only going to grow, so GE can take comfort in knowing there will be plenty of demand for its wares long term.

Stock Catalyst No. 3 has to do with "legal insider trading." In our 1998 Prentice Hall book, Contrarian Investing, co-author Anthony M. Gallea and I found that massed buying by insiders was the single-biggest indicator that a stock was going to move higher.

Corporate insiders, you see, sell their company's shares for many reasons: tax preparation, estate planning, and diversification are a few examples. But insiders buy for only one reason - they see a chance to make money on their own stock.

A lot of money.

Over the last 18 months, there's been a hell of a lot of buying by GE insiders.

Last year, CEO Jeffrey Immelt snapped up 40,000 shares of GE at slightly more than $25 a share - dropping a bit more than $1 million to make that happen. That brought Immelt's holdings to 1.86 million GE shares, worth about $47 million.

And Immelt wasn't alone.

Two independent GE directors - Geoffrey Beattie and James Rohr - bought an aggregate 14,000 shares between them, spending $103,000 to do so.

Three execs... $1.1 million in purchases.

This was a significant transaction. And we've seen more insider buying since then.

In April, four General Electric directors bought more than 45,000 company shares.

GE is currently trading at $25, so that means you can buy in now at a price that's equal to - or even cheaper - than the price the so-called insider "smart money" bought at.

It doesn't get much better than that.

Here's how I recommend picking up these shares...

In a market like this, you don't have to go "all in" on a stock all at once. Look to "accumulate" shares - adding to your position each time the stock trades back.

That's a winning long-term investment strategy - in a short-term rocky stock market.

Michael A. Robinson, Defense & Tech Specialist

In a market like this, we need to consider paying a premium for the best possible stocks in the "flight to quality" that savvy investors are making now.

I really like this small tech leader. It offers us the potential of quick, triple-digit gains, and it's so far off Wall Street's radar that the analysts there think it's just another "software company."

In fact, it's called The Ultimate Software Group Inc. (Nasdaq: ULTI).

And with an estimated 6% to 8% share of its $11 billion market, this is one of the best specialized plays investors can make on the burgeoning cloud-computing sector.

Ultimate is a leader in a field known as human capital management (HCM). It offers a wide range of tools for human resources departments at firms with both hundreds and thousands of employees.

Its main product is UltiPro, a cloud-based platform that manages the employment life cycle from recruitment to retirement. It's a managed suite of services that covers payroll, tax withholding, health services, and retirement accounts.

That puts Ultimate in a cloud sector known as "Software as a Service," or SaaS. For SaaS services, International Data Corp. estimates annual growth of 18% through 2018, when the market will $50.8 billion.

And according to the forecasters at MarketsandMarkets, the HCM market is growing at a 9.8% compound annual growth rate from $10.96 billion in 2014 to $17.49 billion by 2019.

Now, just because a stock is "on sale" - and Ultimate is nearly 10% off its highs - doesn't alone make it a good "Buy."

But Ultimate more than satisfies all five of the criteria laid out in my "Tech Wealth Blueprint."

It has great leadership that's brought in more than 2,800 clients with employees in 160 countries. And for the second year in a row, it made the 2015 InformationWeek Elite 100, a list of the top business technology innovators in the United States.

It's "signal to noise" ratio is near-perfect. This is one of those rare cases where the company's name actually works against it, creating a bit of "negative hype."

The use of the word "software" - a somewhat stagnant business - makes it easy for investors to miss the fact that Ultimate is really a play on two of the biggest growth sectors out there - SaaS and cloud computing.

Ultimate is focused on growth. Companies that have the strongest growth rates almost always offer the highest stock returns. Last year, Ultimate booked a little more than $500 million in revenue. But it's forecasting that sales will double to $1 billion by the end of 2018. And it has the track record to back it up.

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And Ultimate could double our money - soon. This is where we look at earnings projections and see how long it will take the firm to double profits. By doing that, we can figure out how long it will take for the stock to double.

Now we use what I call my Doubling Calculator. Divide the compound growth rate of 14 into the number 72. We find that it should take a little more than three years for Intuit's stock to give us 100% gains.

Ultimate trades at $190, giving it a $5.4 billion market cap. It has 8% operating margins and a 15% return on equity. Over the past year, it has gained 28%, more than five times the S&P 500's 5% return.

In other words, Ultimate is the ultimate post-sell-off foundational play. That's why it's our first "choice" when it comes to giving your portfolio a solid base in a choppy market.

Keith Fitz-Gerald, Chief Investment Strategist

Lots of great companies got put on sale in a market move on Aug. 24 that had nothing to do with the business case for owning them: Visa Inc. (NYSE: V), Google Inc. (Nasdaq: GOOG), Netflix Inc. (Nasdaq: NFLX), Apple Inc. (Nasdaq: AAPL), Celgene Corp. (Nasdaq: CELG), and more.
I like to use a tactic called the lowball order to pick up great stocks that are "on sale" in markets like this. I'm looking at several right now, which I'll show you in just a moment.

What you're doing here is laying a "profit trap" in advance of conditions that you know favor your money rather than the institutional traders who would otherwise take it from you.

Take The Walt Disney Co. (NYSE: DIS), for example.

The stock had been on a tear since January, leaving most investors who want to buy in the dust. On Aug. 24, it fell to a low of $90 per share... which not coincidentally represents key support right before the run and a fabulous entry point for another leg higher. It closed the day at $95.89 a share for a quick 6.54% gain.

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Or, how about Apple.
Last Monday, the Cupertino giant blew through price levels others thought impossible on its way down to a low of $92 a share before reversing and closing at $103.12 for a quick gain of 12.09%. Yesterday, it opened at $110.15 a share. Even if traders got in early at $95 based on levels set last fall, chances are they did just fine, too.

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Obviously these are both shorter-term entries, but the principle still works well over far longer time frames.

Consider Altria Group Inc. (NYSE: MO).
Based on the chart below, I can envision lowball orders placed in several logical areas I've underlined in yellow: $43, $44.50, and even $48 per share.

With a dividend yield of 4.20% on the heels of an 8.7% dividend increase, I wouldn't be especially concerned by a few percentage points up or down in the scheme of things - especially if your anticipated holding period is a multiyear period.

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You can use lowball orders on almost any financial instrument, from stocks and bonds to ETFs.

Right now, for example, I think a lowball on the SPDR S&P 500 ETF (NYSE Arca: SPY) makes great sense if the markets take out last year's low of 181.92, which I've annotated here for you using a swing trading setup oriented around a 7 to 21 day window.

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At the end of the day, it doesn't really matter whether you are placing lowball orders as a day trader or as an investor. The principle is the same - buy low and sell high.

That's how the game is played and, more importantly, how you profit from quick swings in the markets that drive most investors straight to the poorhouse.

So go line up your share of profits right now.

More selling only plays into your hands...

Note: Keith's shown his readers the market's volatility doesn't need to be feared and given them the exact strategies to profit. To get free access to all of Keith's Total Wealth research, including his exclusive briefing "Three Ways to Profit From a Market Correction," click here.

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