Market corrections are part of life.
The trick is knowing what to do next. Maybe you've been stockpiling cash for just this reason. Or maybe some of your stocks hit their trailing stops, and you're wondering where to put your money.
No matter your situation, you've come to the right place.
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While the uninitiated may be scared out of the market altogether, smart investors like you are looking at share prices like a kid on Christmas.
You see, after 11 years of this bull market run, stocks were getting just a bit too pricey.
The S&P 500 was trading at 18.9 times projected earnings. That was up from 16.2 a year ago and - save for a brief moment in early 2018 - it was the highest forward P/E for the index since May 2002.
That meant all investors were paying a premium just to own shares of the top companies. That's a hard pill to swallow for many investors. But when stocks keep rising, there are few alternatives other than to fork over the cash.
But a correction is like putting stocks on sale.
We know that over time, the market's trajectory is always up. A correction like this one gives you the chance to make even more money by buying the dip.
Except not every stock is worth owning.
That's why we turned to Money Morning Chief Investment Strategist Keith Fitz-Gerald.
As Keith says, "Even a few hundred bucks or just 1% of your cash on hand could mean the difference between getting taken to the cleaners and fighting back profitably."
Keith laid out the six criteria he's using for finding the stocks with real profit potential right now.
Here's what the stocks on your buy list should have:
- Market capitalization greater than $1 billion.
- Altman Z-Score greater than 2.
- Yield above the average S&P 500 stock.
- Dividend payout ratio less than 60%.
- Dividend growth greater than 5% over the past five years.
- At least two consecutive years of dividend increases.
Stocks that fit the bill are stable, income-producing companies that are more likely to bounce back from a crisis like this. You'll not only be able to lock in an above-average dividend yield thanks to the correction, but stable stocks like these are where the money will head first once the rally ignites.
To help you get started on building your wish list, we've found three stocks that meet these criteria.
The 3 Best Stocks to Buy Right Now
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i hope the roadmap will lead us to the promise land.
Thanks for the great money morning news
Great newsletter!
Sounds great, but at $1600 it would drain all my money. Trades at $500, $1600 equals three or more trades.
Daniel,
Thank you for being a Money Morning reader!
None of the three stocks recommended here have been valued at $500 at the time, or since, this story was published.
However, I understand your point that some of these stocks are price higher than others. In this circumstance you would want to keep your risk tolerance in mind, and be selective with your investment choices.
When selecting your own investments, it's important to remember never to invest more than you can risk losing, even on the most promising opportunities.
Best of luck!
–Money Morning Team Member