The market ended 2015 on a down note, and has continued to sing this tune during 2016's first week. What to do?
Is it time to panic, batten down the hatches, cash out and stuff all your money under the mattress?
If you are at all familiar with my investment strategy, you know that I never try to predict the market, or anticipate its moves. Instead, I believe in a prudent, steady approach that aims toward the long term and is not distracted by short-term market gyrations. I believe this approach is valid during the current market turmoil.
Here are two stock recommendations that could serve you well in the future. I like them primarily because a method I use to choose stocks, my interpretation of the quantitative strategy of Ken Fisher from his book "Super Stocks," strongly recommends them.
You have likely heard of Ken Fisher, the noted money manager, long-time Forbes columnist, best-selling author and smart market thinker. I have been tracking the results of my Fisher-based strategy since July 15, 2003, along with a number of other strategies -- most based on the writings of individual strategists -- I created at the same time, and Fisher's is the top performer among the individual strategies.
Since the start date in 2003, my Fisher Super Stocks strategy has produced an average annual return of 10.0%, compared with a 5.7% return for the S&P 500 during the same time period. Put another way, over a 12-plus year period, this strategy has dramatically outperformed the market.
Now you know why I am focusing on it at this time: When the market is stumbling, the smart approach is to rely on the steady hand of a strategy such as Fisher's.
Fisher is famous for advocating the sales-to-price ratio, a measure of how well-priced a stock is. Ideally, a stock's P/S ratio should be below 0.75, based on trailing 12-month sales. You do not want to overpay in a market like we now have, and the P/S ratio is a way to buy at a likely very favorable price.
Of course, the Fisher strategy looks at more than just the P/S ratio. It wants the total debt-to-equity ratio to be positive, the long-term earnings per share growth rate to be greater than 15%, and the three-year average net profit margin to be 5% or more.
Two stocks that meet all these criteria and earn the Fisher strategy's highest rating are Mueller Industries (MLI) and Sanderson Farms (SAFM).
Mueller, headquartered in Memphis, Tenn., manufactures and distributes a variety of products and services related to heating, plumbing, ventilation and industrial applications for wholesalers, retail distributors and original equipment manufacturers around the world.
The company's P/S ratio is 0.68, indicating the stock is very well priced. Long-term EPS growth is 40%, way above the 15% minimum threshold, while free cash flow per share is positive and the three-year average net profit margin is 5.35%.
Mississippi-based Sanderson Farms is the country's third-largest poultry producer, and a Fisher favorite. The stock's P/S ratio is a solid 0.62, its long-term EPS growth is a desirable 32%, while its free cash flow per share is positive and its three-year average net profit margin is 7.18%.
In times of trouble, stick with winners, and the Fisher strategy based on "Super Stocks" is a winner. It likes Mueller and Sanderson, and I think you should, too.
