A Stock Sell-Off's Coming? Let's Go Shopping!


The stock market may be nerve-wracking in coming weeks, as sequestration issues, reminders of sluggish economic growth and some foreign governing problems take over the headlines. Columnists right and left are predicting a downhill run for the S&P 500 over the next month, although longer-term forecasts from strategists remain bullish. Among long-term value investors, the correct cliché for this phenomena is: “a buying opportunity.”

To aid with the bargain-hunting, we’ve listed here a few of Wall Street’s current favorites. These are big, well-managed companies that lately have carried words of praise from analysts even when their shares traded at outsized valuations. Some all-around selling in the market that knocks down their price-earnings ratios might make these shares more palatable for value investors.

Notice that there’s no lululemon athletica (LULU), Amazon.com (AMZN) or other amazing share-price gainers on this list, although many analysts like them too. Their gains have put valuations up very high, making them more vulnerable to large drops in a market correction. Also, it would take disastrous share price falls to put their prices into value territory.

Monsanto (MON)

As the engineer of some of the world’s most reliable food seeds, in a world where food demand is skyrocketing, Monsanto often emerges as a favored stock. Its dividend yield is low – 1.5% now – but the company reliably boosts it most years. The Supreme Court recently heard arguments in a case that could have threatened the company’s patents on genetically engineered seed, but that’s done little to hurt Monsanto’s PE ratio. Even the justices listening to arguments seemed sympathetic to Monsanto’s case.

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MON PE Ratio TTM Chart

Qualcomm (QCOM)

Qualcomm makes the chips for iPhones, Android phones, tablets of varying provenance – all those mobile devices that are putting PC makers out of business. Sales growth of these devices will be slower this year than last, but mobile is still the hottest growth industry around. Nearly 900 million smartphones alone are expected to be sold this year. Qualcomm’s revenues are forecast to rise 25% this year with nearly as much in earnings gains. More than 30 analysts follow its shares, and already, buy recommendations outnumber holds three to one.

Google (GOOG)

Google investors took some knocks in recent years while everyone worried about whether it could sell online ads that worked on mobile devices. Suddenly, mobile is a great growth opportunity for Google as it emerges as the leader in mobile tech and rakes in higher profits doing it.

Google is a top hedge fund holding and buy almost every quarter now. In fact, Google and American International Group (AIG) replaced Apple (AAPL) in those portfolios last quarter. Several analysts recently raised price targets to $1,000, which would be a 26% gain on the Feb. 25 close.

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GOOG Chart

American International Group (AIG)

AIG replaced Apple (AAPL) as the top holding in major hedge funds last quarter. And yes, this is the massive insurer whose bailout helped drain the government coffers just five years ago. But after owning as much as 92% of AIG in 2008, the Treasury is out now, and AIG is streamlining itself into a basic property/casualty and retirement/life insurance company. It’s selling off businesses like aircraft leasing and using any gains (sometimes, there are losses from these deals) to pay down debt.

AIG shares go for deep discounts against others in the sector. Theory is that once it sheds non-traditional insurance businesses, its valuations will soar even with ordinary earnings reports. Investors also look for the company to eventually pay dividends like its competitors.

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AIG Price / Tangible Book Value Chart

Dee Gill, a senior contributing editor at YCharts, is a former foreign correspondent for AP-Dow Jones News in London, where she covered the U.K. equities market and economic indicators. She has written for The New York Times, The Wall Street Journal, The Economist and Time magazine. She can be reached at editor@ycharts.com.

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