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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Starbucks Corp. (NASDAQ: SBUX) has long been on our list of "must have" stocks, and that's especially true now that coronavirus volatility is slamming markets.
The coffee giant is massively profitable, earning more than $3.5 billion in profits last year. That sort of profitability allows it to pay an above-average dividend yield of 2.2%, regularly grow its dividend, and keep the payout ratio below 60%.
But the company isn't just a dividend payer. It has explosive growth potential too.
You've undoubtedly seen its stores on street corners, hotel lobbies, and college campuses, and you might even have its products in your home. So where's this growth going to come from?
Starbucks has just 3,000 stores in China now. That's changing in a hurry. Starbucks plans to open a new store in China every 15 hours for the next four years, nearly doubling the number of stores by 2022. That's simply an incredible rate of growth. And it makes total sense considering the massive profit potential behind China's exploding middle class.
While the Chinese economy was hit with the coronavirus, they've contained the spread, and we expect it will recover soon. That's important because their middle class is staggering in size.
There are already 430 million people in China's middle class, over 100 million people more than the entire population of the United States. But it's getting even bigger.
China's middle class will be 780 million strong by the mid-2020s, nearly doubling in size.
You see, the middle class is the largest income group - and it has the disposable income to spend money on luxuries, including that $4 latte on the way home from work. That's part of what's helped Starbucks explode in popularity in the United States, where it now has nearly 14,000 retail locations.
That's exciting, but there's another innovation we're more interested in.
Keith says Starbucks is diving headfirst into the Big Data trend, and that's helping boost its performance. Starbucks rolled out its "Digital Flywheel" to help leverage its inventory and commercial data into even more profits.
This will allow Starbucks to target individual customers with personalized offers, manage its inventory with predictive algorithms, and boost revenue across the board.
Intel Corp. (NASDAQ: INTC) is next on our list. It's a tech behemoth that often slides under the radar behind Apple Inc. (NASDAQ: AAPL) or Amazon.com Inc. (NASDAQ: AMZN). But it shouldn't.
The company is massively profitable, reporting $21 billion in profits last year alone, while it makes some of the most important hardware in tech. Everything from smartphones to self-driving cars to artificial intelligence relies on Intel products.
While Intel is a household name due to its computer chips - you might see its logo on the device you're using right now - it's made a deliberate shift into the data industry.
This isn't just because a more connected world means we need more digital space to store information, though that's certainly part of it. Breakthroughs in machine learning and artificial intelligence mean companies can comb through terabytes of customer data to find patterns, efficiencies, or opportunities. It could take human analysts months or years to process what a machine learning algorithm can do in hours.
That's fueling nearly $100 billion in growth for the Big Data industry between now and 2022. That's good for a CAGR of 26% between 2015 and 2022.
But companies jumping into the Big Data world can't do it without the technology that makes it work. And that's where Intel comes in. Its Xeon and Stratix processors are built for artificial intelligence and Big Data processing. Plus, they're scalable, so companies can add on as they grow their operations.
Intel's push into data has paid off handsomely too. Revenue is up 34% since the initiative started.
That helps it reward shareholders with an above average 2.5% dividend yield, which its increased regularly. Dividend growth is over 5%, and Intel has hiked it for two years straight now.
Despite all the positives, Intel still trades at a dirt cheap price/earnings ratio of 11, about a third of the average tech stock. This is a company to stash away right now, while the buying is cheap.
Our last company to buy is Lockheed Martin Corp. (NYSE: LMT).
It's the largest defense contractor in the world by revenue, and it supplies everything from aircraft, to data analysis, management, and technology to governments and businesses across the world.
Its size, scope, and history of results means it wins the most government contracts of any defense contractor. That's a huge deal in the United States.
The 2020 Pentagon budget didn't get much attention when it passed, probably because it was overwhelmingly supported by the House in a 377-48 vote. But the numbers are staggering. All told, the 2020 bill is worth $738 billion.
Looking more closely at the budget, $57.7 billion is dedicated to aircraft alone. Lockheed supplies aircraft to all five military branches, making it one of the biggest winners of this nearly $60 billion slice of the budget.
And we're already seeing the contracts roll in. On March 9 (the same day the S&P 500 dropped 7%), Lockheed announced it won a $16.2 million contract to supply upgrades to 14 C-130L "Super Hercules" airlifters.
As more contracts are announced throughout the year, you can expect to see Lockheed's name attached to many of them.
Right now, Lockheed offers investors a dividend yield of 2.6%, good for $9 per share annually.
Most impressive of all, Lockheed has been growing its dividend payment by at least 10% annually since 2010.
Holding a stock like Lockheed for the long term, especially when it's growing dividend payments, is one of the best investing strategies available.
The company increased revenue from $47.25 billion in 2016 to $59.8 billion in 2019, and that's not something that will simply vanish... virus or no virus, no matter who's in the White House, no matter what the Fed does next.
But you don't have to stop at just these three stocks.
Private markets are an even more exiting option right now. Because these companies aren't publicly traded, you don't see the day-to-day volatility like you do on stock exchanges.
Plus, you get the opportunity to get in on the ground floor of some of the most exciting companies in the world...
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