Over the past few days, investors have watched markets swing wildly. The Dow Jones declined over 1000 points on Monday. In the first 90 minutes of trading the index moved more than 3000 points in up and down trades, further highlighting the extreme price swings. Tuesday saw major indices initially increase 3% and gain back some of the prior day’s losses, only to finish in negative territory, which marked the largest intra-day reversal since October 2008.
What are investors to do when markets enter correction mode and experience extreme volatility along the way? How can they be sure their portfolios are strong throughout all market cycles? The only way to feel confident in your investments during a bear market is to buy companies with strong cash flows. However, finding companies with strong cash flows is easier said than done. Accounting distortions must be backed out of reported earnings to find the true, recurring cash flows of the business.
New Constructs does just that for over 3000 companies under coverage. In fact, we provide a monthly Most Attractive Stocks list that includes those companies with strong cash flows and cheap valuations. As can be seen in Figure 1, Most Attractive Stocks, Brocade Communications (BRCD), Target Corporation (TGT) and NVIDIA (NVDA) all outperformed the market from 8/17 through 8/27. The S&P 500 was down 6% during this time.
Figure 1: Most Attractive Stocks Outperformed During Correction
To avoid the stocks with negative cash flows and expensive valuations, we also create a monthly Most Dangerous Stocks list. Figure 2 highlights Most Dangerous stocks, Valero Energy (VLO), Charles Schwab (SCHW) and Twitter (TWTR) as just a few of the stocks which underperformed during the market correction over the last week and a half. Again, the S&P 500 was down only 6% during this time.
Figure 2: Most Dangerous Stocks Underperformed During Correction
For more information on protecting wealth during the current market, as well as all market cycles, watch our webinar “ How to Protect Your Wealth During the Current Market Meltdown,” which was recorded August 27, 2015. New Constructs CEO and Wall Street veteran, David Trainer, covers the keys to long-term portfolio protection and growth and the principles behind true value investing.
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Photo Credit: Alan Grinberg (Flickr)