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Time to Sift Through ‘Left For Dead’ Sectors: Stovall


There's a funny scene in the movie Monty Python and the Holy Grail, where the the medieval-era trash collectors are calling on citizens to "bring out your dead." There's one small problem though; people who are still alive typically don't want to be declared dead.

And so it is with stocks right now, with the month of May hammering 90% of the S&P 500 and extracting near double-digit revenge on 4 of the 10 sectors. In the past three weeks alone, 15 stocks have slipped into "insta-bear" mode by shedding 20% or more.

But as the lobby of the morgue fills up, so to speak, investors like Sam Stovall, Chief Equity Strategist at S&P Capital IQ, are beginning to search for old loved ones whose time may not be up yet.

"If you believe a counter-trend rally is around the corner, then you may want to be looking at some of the most beaten up sectors," Stovall says in the attached video, pointing to Financials (XLF), Energy (XLE), Tech (XLK) and Materials (XLB).

But this is not for the feint of heart, he says, or the place to park your rent money. It is, however, a proven way to find the leaders of the next rebound. And Stovall says this applies not only to sectors, but to individual stocks, industry groups and sub-industries too, many of which have been tagged with a short-term 20% setbacks.

"Investors always gravitate towards the defensive sectors," he says, "until the panic has subsided, then they come back to the more cyclical sectors."

Among the hardest hit sub-industries that Stovall cites, include Life Insurers, Investment Banking, Household Appliances, Steel, and Trucking.

Of course, there are names that found their way to death row on their own terms, such as Fossil (FOSL) and JC Penney (JCP), but there are also names like Hartford Financial (HIG), Cisco (CSCO) and E*Trade (ETFC) whose only crime is having been leaders on the last leg up or linked to a lagging sector.

Again, bottom fishing is not the place to base a love story, but investors like Stovall know it is the kind of place to find ideas that still have some life in them and aren't ready to be left for dead just yet.