5 Stocks to Sell, 5 Stocks to Buy

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After a rough start to 2010, the markets have perked up in the last several weeks to send the Dow to a 17-month high. But before you sound the bull market rally cry, I have to warn you that the recent uptick in the markets is a classic "fake out" move. And you shouldn't buy it for a second.

The reason I'm cautious about the rally is because first-quarter earnings will represent the last of the "easy earnings," and when reality hits, I expect the overall stock market's breadth and power to deteriorate. This is not a market crash or an environment where profits are impossible, but it will be a narrow market where owing the right stocks is paramount.

To give you some context, the S&P 500's operating earnings are expected to decelerate rapidly from 63.5% in the first quarter to 33.2% in the second quarter to 24.9% in the third quarter. Let's face it, during the last year, we've seen some real low-quality, fundamentally unsound stocks rally, and upcoming earnings are about to create a huge rift between good stocks and bad.


In this kind of market, it won't be enough to be a good stock: It will take a GREAT stock to gain traction.

To make sure you're not caught on the wrong side of this divide, I've made a handy list of 5 stocks that make the grade and can do very well in this market environment and 5 stocks that are positioned for a painful decline.

The 5 WORST Stocks to Own Right Now

Health care stocks may be in for a bumpy road ahead, but ARYx Therapeutics Inc. ( ARYX ) is not only the worst health care stock on my list, it's one of the worst-ranked stocks in my entire Portfolio Grader database of 5,000 stocks . The company gets a D or F grade in just about any category and even managed to lose 10% of its value on Monday as the health care bill was passed.

Natural gas stocks have suffered from lower demand and lowered industry outlooks, but the one stock you really need to avoid in this industry is Devon Energy Corp. ( DVN ). This company has a history of reporting earnings surprises, but on every other measure of strength, this stock simply doesn't make the grade.

Alico Inc. ( ALCO ) is a consumer staples stock that one would think would do well in a tight economy and a narrow market, but this is not the case. In the last four quarters, the stock has missed earnings estimates by an average of 776%! While many stocks have benefited from the market's rally, this one is about flat in the last year and is not a good value for investors today.

Overstock.com Inc. ( OSTK ) could have been one of the big winners of the last year and of the narrow market ahead, but the company missed its chance. As frugal shoppers looked to find deals online, Overstock.com didn't become consumers' main destination for deals. Take the lead from shoppers and continue to avoid this stock.

NutriSystem Inc. ( NTRI ) was on an incredible run in late 2009 and into the early weeks of 2010. Climbing from under $15 to over $30, the stock seemed unstoppable�until it stopped. The declines seem to be coming ever since the acquisition of Nu-Kitchen, but like most people failed on their resolutions to lose weight so has the stock failed early in the year.

And Now the 5 BEST Stocks to Own Right Now

I showed you why you should avoid ARYX above, but there is one health care stock you can buy right now -- Intuitive Surgical ( ISRG ). This stock has made it to the top of my Emerging Growth and Quantum Growth services because it represents the very best of the industry. From strong earnings and sales growth to incredible buying pressure and analyst revisions, this one has winner written all over it.

Amazon.com ( AMZN ) succeeded where Overstock.com failed. AMZN was able to lure in customers with incredible deals and got them to buy throughout the recession. This has been an A or B rated stock for the last 12 months, and I expect it will continue to be a great investment in the months to come.

Integrated Silicon Solution Inc. ( ISSI ) is what I call a bunny stock. It jumped 20% today on its first-quarter forecast numbers. I'm a little concerned about the increased costs the company will have to face in the coming quarters, but if you're a more active trader, this is stock could be a great play for you.

MicroStrategy Inc. ( MSTR ) is a software company that has been firing on all cylinders in the last year. Software is one of the sectors that I like right now and MSTR has the strong fundamentals you want in a company right now.

Our list wouldn't be complete without an energy play. Right now, I like Green Plains Renewable Energy ( GPRE ). You probably haven't heard of this one, and that's the point. The stock was just added to the NASDAQ Clean Edge Green Energy Index and this will increase buying pressure and attention to the stock.

I hope you've taken my words about where the market is headed and which stocks are good and bad buys to heart. This is important information that you need in order to keep your investments in the right areas as we enter the next phase of the market recovery.

Louis Navellier owned shares of AMZN, ISRG, ISSI, GPRE and MSTR in personal or client portfolios as of this writing.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks


Louis Navellier

Louis Navellier

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