Most of the near-term bargains I'm seeing right now are in smaller companies, with the Russell 2000 down about 25% from its highs. The S&P 500 is barely in correction territory after a six-year run-up driven largely by buybacks, layoffs and cost cutting, so I think it's premature to declare this a massive buying opportunity for big-caps.
I have no idea what the market will do over the next few weeks or months, but I do know that this isn't the time to own fundamentally challenged large companies. As an old friend of mine used to opine: "It doesn't appear that the squeeze will be worth the juice."
Many big-caps have dropped along with the overall market this month, but are still expensive based on their assets and earnings. They also have low Piotroski F-scores, indicating that their businesses aren't that great right now.
Two examples of this:
Under Armour (UA)
Under Armour's stock has soared some 18% today to around $82 at last check after the company released a strong earnings report. But UA was off some 15% for the year prior to today, and is still well below its $105.85 September intraday peak.
It's a great company with good products, but even the greatest stock can trade at too hefty a price. In Under Armour's case, it's currently trading at around 84x trailing earnings.
Many analysts had lowered their UA earnings expectations in the past few months. That hadn't previously happened in some time, but it's not a big surprise given that Under Armour has an F-score of 1, the lowest reading possible.
UA is currently priced for perfection, but there are signs that the company is having a little difficulty maintaining that state. If the firm ever reports an earnings miss this year in a falling market, the carnage to its stock price could be substantial. So, I think the risks far outweigh the reward here in spite of UA's declines since September.
Charles Schwab (SCHW)
Schwab has dropped sharply this year, down more than 20% so far.
But even after this decline, the stock still trades at around 25x trailing earnings. And while the forward P/E looks more reasonable at 14, there are a lot of factors that could cause that reading to be a tad overly optimistic.
I'm personally a big fan of Schwab's services. The company is one of the few that I'll recommend when someone asks for advice on picking a brokerage firm. But Wall Street's current high volatility levels are scaring investors, and Schwab's trading volumes will likely decline substantially if that continues.
The company's F-score of just 3 also indicates that the firm's fundamentals aren't improving right now. So, I'd avoid the stock until its valuation becomes more reasonable and prospects appear more favorable.
The Bottom Line
I can't predict markets, but it does appear that risk levels are rising and many stocks are still richly valued.
I'm hoping prices drop more to give us big buying opportunities. We're getting closer to that, but I don't think we're there yet. And until we are, I recommend avoiding Under Armour, Charles Schwab and other stocks that are pricey and have poor prospects as measured by their Piotroski F-scores.