With the market finally undergoing some corrective action it is a good time to put together a shopping list and start looking for some new buys.
One school of thought is that stocks that are exhibiting relative strength in a weak market are likely to outperform when the action improves. If they can do well in a bad market they should do even better in a good market.
Based on that thinking I've been building a position in Twitter (TWTR) . Twitter has been a battleground stock but speculation about favorable deals has been growing and market players are building long positions. The stock is breaking to its highest level since 2015 and I am looking to add to my position today.
A second approach to dealing with a weak market is to buy stocks that have posted very strong earnings but have suffered from a "sell the news" reaction. Lam Research (LRCX) falls into that category and I took advantage of the weak open this morning to pick up some shares.
Lam solidly exceeded estimates by $0.67 and increased guidance to $4.20-4.50 from $3.77. By any measure those are great numbers but there is some concern about the semiconductor cycle and the stock ran up too much into the news. I believe that LRCX has more than discounted the concerns and should bounce back after the market goes through a brief correction phase.
A third approach is to look for stocks that have a favorable theme but are being punished due to overall market conditions. One theme I have mentioned that should be a winner in 2018 is cannabis stocks. My top ETF play for 2018 is the ETFMG Alternative Harvest ETF (MJX) . It is trading down about 3.5% today and I'm looking to build my position. I see technical support at $33 but I'd be surprised if the stock moved that low. I'm slowly adding some shares and will leave plenty of room to add further as it develops.
In addition to the three names, I am also looking at a number of small-caps that suffer in a poor market due to a lack of liquidity. These can be some of the best opportunities in a poor market and I will discuss them in depth in a future column.