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.
) 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.
). This company has a history of reporting earnings surprises, but
on every other measure of strength, this stock simply doesn't make
) 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.
) 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.
) 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
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 --
). This stock has made it to the top of my
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.
) 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.
) 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.
) 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
Our list wouldn't be complete without an energy play. Right now,
Green Plains Renewable Energy
). 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
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.