Experts have described the current falling US markets as a correction. It interrupts more than five consecutive years of remarkable growth. Assuming that is accurate, the parameters of the correction have not been determined and we do not know how deep the correction will run. We know that is widespread and essentially global. It involves markets in major economic zones that have experienced degrees of the same downward movement. China’s markets are still falling, and India has taken a similar deep plunge. In both cases, government action has failed to contain the sudden steep drops in value. In the US, the trading volume and patterns suggest the elements of a rebound; there is a significant new inflow of funds from around the world into US bonds and Treasuries.
Finding Shelter in the Rain
In a broad correction, many strong issues have fallen. The markets are full of large cap stocks with recent declines. These include some of the large, successful firms, with lots of assets and market dominance. The key is the rate of recovery of the losses; this shows the underlying market strength of the stock. A good example is Apple, which fell and recovered to $131.95 within range of its high for the year at $134.45 when investors took advantage of the drop to catch a stock with enormous strength and upside potential.
The Number One Stock to Buy
PayPal (PYPL)is a great selection for the number one stock to buy. It has a low level of debt, many potential new lines of business and income streams, and it is a leader in its field. PayPal is a spinoff of eBay with more growth potential in its current lines of business in electronic payments, credit, and finance. PayPal recently acquired Modest as an addition to its Braintree acquisition to expand support of small business payments and mobile payments. Finally, the big box retailers have not developed an electronic wallet and will increasingly turn to companies like Apple and PayPal for payments technology and systems.
Tied for the Lead
Apple is the co-leader as the number one stock to buy. For similar reasons, Apple is an excellent stock for these circumstances. It is a global technology leader with a proven record of exceptional management and product development. Another, equally strong candidate for top buy recommendations would be Southern Co(SO) which has expanded into natural gas by buying AGL for $8 billion. It is a regional giant and has covered the utility demand by expanding into gas as well as its existing strength in electric utilities.
When the only certainty is uncertainty, it is a good time to re-examine strategy and position. Concerns about Federal Reserve action on interest rates have taken a backseat to the more urgent news on global markets particularly China, India, and Brazil. The underlying shape of US energy markets suggests that oil has taken backward steps, and alternative energy will continue to grow. Income stocks may be more attractive in a volatile market. Dividends help reduce the impact of volatility and provide reserves for action in a falling market. Many investors will see increased risks in a falling market while others will see remarkable opportunities. The underlying strength of companies may be the best guide, those with low debt, and strong income positions will attract buyers.