Strategists say investors should proceed carefully, but there are stocks to buy in turbulent market

Published Fri, Feb 25 20229:50 AM EST

Patti Domm @in/patti-domm-9224884/@pattidomm

Stocks have been getting whipsawed, but some strategists say there are still places to put money to work in this market. The S & P 500 Thursday fell sharply on Russia's invasion of Ukraine, but the index turned positive later in the day and notched a 1.5% gain. The broad-market index rose on Friday. "There's a lot of stuff out there that is telling people that things are bad," said Sam Stovall, chief investment strategist at CFRA. "But maybe from a contrarian perspective, that's when you think about buying. If everybody thinks the world is going to end, it probably isn't." Stovall said while the market is swinging wildly, there's a chance the S & P 500 could head into a bear market, or decline of 20% or more from its high. On Thursday, the broad-market index closed at 4,288.70, about 11% down from its Jan. 3 closing high. A drop of 20% from the high would take the S & P 500 to 3,837. Discount shopping in different sectors Stovall said he is looking for stocks in tech and other sectors that could be bargains. He is looking for those that are down 20% or more from their highs and are trading below the S & P 500's multiple of 19.5 times forward earnings. In financials, he found Goldman Sachs and BlackRock. In tech, he is looking at Broadcom, Applied Materials and Fiserv . Julian Emanuel, chief equity, derivatives, and quantitative strategist at Evercore ISI, said investors should continue to look at value names and companies that can do well in an inflationary environment. He said investors with dry powder should move cautiously but it may be time to pick among some sectors. For instance, homebuilders' stocks have gone through rough times, and short interest is high. Treasury yields dropped on concerns about Ukraine and that should help bring down mortgage rates, a positive for homebuilders. The SPDR S & P Homebuilders ETF closed 2.6% higher Thursday. "I just think if you're an investor, you need to continue to examine exposure to value versus growth and think about continuing to tilt your portfolio," Emanuel said. He expects stock market volatility to remain elevated before and after March 16, the day the Federal Reserve is expected to raise interest rates for the first time since 2018. "Despite the higher volatility, stocks remain relatively uncorrelated. This argues for isolating factors such as margin expansion and pricing power as outperformance attributes in the new inflationary environment," Emanuel said. Looking for pricing power Evercore screened for companies that have pricing power and have shown improvements in profits, revenues or margins. Some of those stocks are D.R. Horton, PulteGroup, manufacturing company Parker-Hannifin, electrical systems provider Eaton, Ralph Lauren and United Parcel Service. "Energy, financials, consumer staples are the three best performing sectors in this market decline," said Stovall. "They're actually holding up relatively well. If you were looking for a FAANG name to buy, I would buy Apple, and it's down similarly to the market." He said the forward P/E is just slightly better than that of the market." Stovall said consumer staples names like ConAgra and Sysco are also trading below the market's multiple and have favorable outlooks. Amid geopolitical conflict, JPMorgan strategists highlighted chemical firms CF Industries and Mosaic , which produces fertilizer. Russia is a major fertilizer producer. The firm's strategists listed energy firms like Exxon Mobil, Pioneer Natural, EOG, Devon a nd Cheniere, which exports liquified natural gas to Europe and elsewhere. They also named defense contractors, like Northrop Grumman and Lockheed Martin should benefit.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, January 25, 2022.

Brendan McDermid | Reuters

Stocks have been getting whipsawed, but some strategists say there are still places to put money to work in this market.