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No more blind buying, all boats lifting, or piggy-backing the indexes this quarter. Forgive the clichés, but the fourth quarter will see the return of the "stock pickers' market," according to traders. Over the last three months, every sector that makes up the S&P 500 went up. Inside those sectors, only a handful of stocks did not go up. Now is the time to take profits on many of your winners and add to names that can weather a bit of an economic setback, according to the Fast Money gang.
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The average U.S. Diversified Mutual Fund is up 38 percent in the last 6 months, when this rally really began, according to the latest data from Morningstar. That tops a 34 percent return over the same period by the S&P 500. Kudos for the outperformance, but their job is about to get much harder.
You can see this stock picking strategy already playing out in the analyst calls from the street, the volume and variation of which have picked up tremendously during the first two days of this quarter. Most notably, Goldman Sachs took Microsoft [MSFT
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] off its 'conviction buy list' yesterday and Barclays lowered estimates on Morgan Stanley. Yet, Apple [AAPL
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] got an upgrade from UBS today and its price target increased to $210 by Oppenheimer yesterday. Morgan Stanley analysts opened the quarter by releasing to clients their 'best ideas' list to focus on, including such varied names as Bank of America [BAC
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], Disney [DIS
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], Hewlett-Packard [HPQ
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] and Baker Hughes [BHI
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].
Jon Najarian, OptionMonster.com co-founder and the most trusted man in America with a ponytail, recommended a strategy this week of buying the rare stocks that did not participate fully in the third-quarter rally, the best for the Dow since 1998. He's buying such underperformers as Leap Wireless [LEAP
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], Synaptics [SYNA
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] and MEMC Electronic [WFR
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]. Najarian figures that money managers may diversify into these "undervalued" losers as they search for the same kind of pop they got from most stocks in the third quarter.
The alternative scenario is that the economy goes into a vicious double-dip and everything goes down to end the year, just as it went up last quarter. Here's to hoping that old Wall Street cliché rings true.
John Melloy is the Senior Editorial Producer for Fast Money. Before joining CNBC, he was an editor for Bloomberg News, overseeing the U.S. Stock Market coverage team.______________________________________________________
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Trader disclosure: On October 2, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (C), (GS), (INTC), (MSFT), (NUE), (BTU); Najarian Owns (C) Calls; Najarian Owns (FFIV) Call Spread; Najarian Owns (GE) Calls; Najarian Owns (JPM) And Is Short (JPM) Calls; Najarian Owns (INTC) And Is Short (INTC) Calls; Najarian Owns (MSFT) And Is Short (MSFT) Calls; Najarian Owns (PEP) Call Spread; Najarian Owns (WFC) Put Spread; Najarian Owns (YHOO) Call Spread; Finerman's Firm Owns (CSCO), (MSFT), (USO); Finerma's Firm And Finerman Own (WFC) Preferred Shares; Finerman's Firm Is Short (IYR), (IJR), (MDY), (SPY), (IWM), (UNG); Finerman's Firm Owns (BDX); Finerman's Firm Is Short (TLT); Finerman's Firm Owns (BAC), (BAC) Calls, (BAC) Preferred; Finerman Owns (BAC), (BAC) Preferred; Finerman's Firm Owns (WMT); Finerman's Firm Is Short (XRT); Finerman's Firm Is Short (BWA); Finerman's Firm Is Short (USO); Seymour Owns (ABV); Seygem Asset Management Is Short (PBR); Seymour Owns (EWZ); Seygem Asset Management Owns Lukoil Shares
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