Stock Pick Update: Lamb Weston, Becton Dickinson, Public Service Enterprise

The coronavirus and economic slowdown fears are still dominating headlines. We released our last week’s Stock Pick Update just before another wave of the broad stock market’s sell-off. Then we have seen very volatile market conditions. Was it a bottoming pattern before a rebound or just consolidation before another decline? We will certainly see more volatility in the short-term. Let’s check which stocks could magnify S&P’s gains in case it rallies, and which stocks would be likely to decline the most if S&P plunges.

Here are our stock picks for Wednesday, March 18 – Tuesday, March 24 period.

The S&P 500 index has lost 10.49% since last Wednesday’s open. In the same period of time our five long and five short stock picks have lost 10.07%. They basically followed another huge wave of the broad stock market’ sell-off. Our short stock picks lost 2.42% and our long stock picks lost 17.71%. It leads to a conclusion that the recent volatility on the financial markets makes effective stock-picking very hard. However, the overall results remain relatively better than the S&P 500 index over last weeks.

If stocks were in a more prolonged downward correction, being able to profit anyway, would be extremely valuable. Of course, it’s not the point of our Stock Pick Updates to forecast where the general stock market is likely to move, but rather to provide you with stocks that are likely to generate profits regardless of what the S&P does.

This means that our overall stock-picking performance can be summarized on the chart below. The assumptions are: starting with $100k, no leverage used. The data before Dec 24, 2019 comes from our internal tests and data after that can be verified by individual Stock Pick Updates posted on our website.Stock Pick Update - Performance Chart Stock Pick Update - Performance Chart

Below we include statistics and the details of our three recent updates:

Mar 17, 2020
Long Picks (Mar 11 open - Mar 17 close % change): ADM (-1.26%), AES (-21.68%), SPG (-45.84%), PSX (-23.54%), BAC (+3.77%)
Short Picks (Mar 11 open - Mar 17 close % change): COG (+14.72%), CME (-17.57%), NOC (-1.88%), CLX (+14.35%), WEC (+2.48%)

Average long result: -17.71%, average short result: -2.42%
Total profit (average): -10.07%
Mar 10, 2020
Long Picks (Mar 4 open - Mar 10 close % change): VNO (-8.94%), WBA (+4.26%), PFE (NYSE:PFE) (-1.45%), NBL (-40.68%), JPM (-14.92%)
Short Picks (Mar 4 open - Mar 10 close % change): APA (-57.45%), PGR (-0.09%), ROK (-9.59%), EQIX (-2.51%), KR (+9.84%)

Average long result: -12.34%, average short result: 11.96%
Total profit (average): -0.19%
Mar 3, 2020
Long Picks (Feb 26 open - Mar 3 close % change): BKR (-11.98%), MMM (-2.89%), PFE (+0.18%), EXR (-0.96%), WEC (-2.91%)
Short Picks (Feb 26 open - Mar 3 close % change): MAA (-4.20%), EIX (-9.01%), CLX (-0.02%), OKE (-7.87%), CMI (-6.54%)

Average long result: -3.72%, average short result: +5.53%
Total profit (average): +0.91%

The broad stock market has reached historically high levels in February. The breathtaking correction in December of 2018 was followed by the record-breaking comeback rally. But the recent sell-off suggests that investors should prepare for more volatility. If the market reverses higher, which stocks are going to beat the index? And if it continues lower from here, which stocks are about to outperform on the short side?

We will provide stock trading ideas based on our in-depth technical and fundamental analysis, but since the main point of this publication is to provide the top 5 long and top 5 short candidates (our opinion, not an investment advice) for this week, we will focus solely on the technicals. The latter are simply more useful in case of short-term trades.

We will assume the following: the stocks will be bought or sold short on the opening of yesterday's trading session (March 18) and sold or bought back on the closing of the next Tuesday's trading session (March 24).

First, we will take a look at the recent performance by sector. It may show us which sector is likely to perform best in the near future and which sector is likely to lag. Then, we will select our buy and sell stock picks.

There are eleven stock market sectors: Energy, Materials, Industrials, Consumer Discretionary, Consumer Staples, Health Care, Financials, Technology, Communications Services, Utilities and Real Estate. They are further divided into industries, but we will just stick with these main sectors of the stock market.

Based on the above, we decided to choose our stock picks for the next week. We will choose our top 3 long and top 3 short candidates using trend-following approach, and top 2 long and top 2 short candidates using contrarian approach:

Trend-following approach:

buys: 1 x Consumer Staples, 1 x Health Care, 1 x Utilities
sells: 1 x Energy, 1 x Financials, 1 x Industrials

Contrarian approach (betting against the recent trend):

buys: 1 x Energy, 1 x Financials
sells: 1 x Consumer Staples, 1 x Health Care

Trend-following approach

Top 3 Buy Candidates

Lamb Weston Holdings(NYSE:LW). - Consumer Staples

Lamb Weston Holdings Daily Chart Lamb Weston Holdings Daily Chart

Potential bottoming pattern
Technically oversold - short-term upward correction play
Resistance level of $60-70 (upside profit target level)

Becton Dickinson (NYSE:BDX) - Health Care

Becton Dickinson and Co. Daily Chart Becton Dickinson and Co. Daily Chart

Breakout above month-long downward trend line
Potential resistance level at $260-275 (upside profit target level)

Public Service Enterprise Group (NYSE:PEG) - Utilities

PEG Public Service Enterprise Daily Chart PEG Public Service Enterprise Daily Chart

Potential upward reversal pattern - upward correction play
The resistance level of $50
Positive divergence between the price and RSI indicator

Summing up, the above trend-following long stock picks are just a part of our whole Stock Pick Update. The Consumer Staples, Health Care and Utilities sectors were relatively the strongest since February 18. And they have lost less than the S&P 500 index in the same period. So that part of our ten long and short stock picks is meant to outperform in the coming days if the broad stock market acts similarly as it did before.

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