A Wall St. sign next to the New York Stock Exchange
Spencer Platt/Getty Images
Before its 3% drop last week, the S&P 500 was sitting at record highs after a broad rally since early November. Through last Monday, more than 90% of its components had been trading above their 200-day moving averages for 20 straight days, according to Bespoke Investment Group. And at least 70% of S&P 500 stocks had been above their 50-day moving averages for 51 days. Both of those streaks came to an end last week.
By Friday’s close, just 42% of S&P 500 components were above their 50-day moving averages and 84% exceeded their 200-day moving averages. Investors and traders use moving averages in a variety of ways, and none are perfect.
One approach after a volatile week could be to look for stocks that have been knocked from their near-term technical trend, but still have strong fundamental prospects. Barron’s screened for stocks in the S&P 500 index that fell below their 50-day moving average in the past week but remain above their 200-day moving average, and that have at least 90% of analyst ratings at Buy or its equivalent.
The screen yielded 19 names:
Near-Term Potholes
Source: Bloomberg, FactSet
(If you cannot view the table above, please click here.)
Lam Research stock (ticker: LRCX) dropped more than 10% last week, amid a broader decline in semiconductor-industry shares. That pushed its price well below the 50-day moving average, but it remains well above its 200-day trend. Wall Street is bullish on Lam Research’s prospects, with 92% of analysts recommending buying the stock.
Facebook (FB) shares haven’t moved out of a relatively narrow range since the late summer, and last week’s 3% decline represented the latest dip of many. The stock’s 50-day and 200-day moving averages aren’t far apart, given its flat performance of late. The same goes for several other stocks that pass the screen, including Valero Energy (VLO), Williams (WMB), Phillips 66 (PSX), and McDonald’s (MCD). Analysts are bullish all the whole group, but it may take a significant catalyst to jolt them out of their recent trading ranges.
Jacobs Engineering Group (J), Synchrony Financial (SYF), Devon Energy (DVN), and Quanta Services (PWR), on the other hand, have been on strong runs lately. Last week’s turbulence interrupted their rallies, and could end up being a decent buying opportunity for investors who missed out on the past months’ gains. Analysts see more upside to the stocks, and a volatile few days for the broader market shouldn’t change the prospects for their businesses.
Like any screen, this list is just a starting point. But picking fundamental winners during or after periods when non-fundamental factors knock the market from its trend can be a good way to scoop up discounts when they suddenly become available.
Write to Nicholas Jasinski at [email protected]
