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Retail investors looking to jump back into the stock market may find it difficult to find out where to even begin given the wealth of mutual funds and ETFs out there. And even those comfortable with their fund-based portfolios may want to explore the field of individual stocks, which are riskier than funds but potentially more rewarding.
To help out the more active small investor, we conducted an informal survey of money managers and market strategists to find out how they pick stocks and which ones they like. Here are the results:
Good Fundamentals, Bearish Analysts
Todd Salamone, senior vice president at Schaeffer's Investment Research, said he looks for stocks with negative sentiment despite strong earnings and upward momentum in share price.
Some of the names that fit this bill are Buffalo Wild Wings [CMG
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] and Chipotle Mexican Grill [CMG
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] in the casual dining group as well as leisurewear retailer Crocs [CROX
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].
"We're taking a contrarian approach but we're not contrarian in a sense that if analysts don’t like it we automatically like it but we want to see more evidence they could be on the wrong side of the trade," he said. "We incorporate sentiment but combine it with price action and fundamentals."
Salmone said he also looks for companies with a high level of short interest, which raises the possibility of a short squeeze.
Credit card giant Mastercard [MA
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] and Amazon.com [AMZN
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] are two well-known names that have seen a bevy of short sellers place bets against them in recent months.
Despite concerns regarding U.S. consumer spending, Mastercard managed to blow away analysts' quarterly earnings estimates in May, he says.
"That is a stock that even leading up to earnings was trading at all-time highs," he said. "There is still a lot of skepticism for Mastercard and even though it had strong earnings, short interest actually increased in May by 20%."
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Data is a real-time snapshot *Data is delayed at least 15 minutes