Stocks To Buy On A Market Sell-Off

By Matthew McCall | March 05, 2012 AAA

Stock markets around the globe began 2012 on a strong note with double-digit gains the norm through the first two months of the year. The Nasdaq hit the 3,000 level for the first time in a decade, the Dow recaptured 13,000 and the S&P 500 traded at a four-year high. It is clear the bulls are back in control of equities.
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Rally
The basically uninterrupted rally for stocks into early March was unprecedented, and it set the major indexes up for a pullback from the overbought levels. That pullback began this week, and it appears it has spooked most investors back into cash. This may be one of the worst choices investors will make all year.

The fundamentals did not change from one week to the other, and the situation in Europe has been the same for the last few months. So, why the sudden change in sentiment? This is the stock market, that is why. When has the stock market even been referred to as rational?

The stocks that have rallied big time in the last couple of months will likely get hit hard by the profit taking, and therefore a buying opportunity will be created. Here are three of the stocks that have been on my wish list for weeks as I watched them skyrocket. For related reading, see An Introduction To The Relative Strength Index.

Wish list
Apple (Nasdaq:AAPL) has been one of my favorites for a long time, and the recent rally has been one amazing run to watch. Investors have been looking to enter into Apple for years and keep missing out on the opportunity. Today is not the day to buy, but if the stock pulls back with the market there could be a new buying opportunity at the $480 to $500 range. The stock is trading with a ridiculously low PEG ratio of 0.64 and a forward P/E ratio of 11.1. If it were to trade with a forward P/E of 15.5, it would put the stock price at $737 per share. That is enough said.

Valeant Pharmaceuticals (NYSE:VRX) is up 16% in 2012 and is trading just below a multi-year high. The fast-growing pharmaceutical company is known for taking over smaller competitors to grow their product line. The company has a bevy of drugs that covers everything from dermatology to neurology. The most recent earnings announcement sent the stock higher and that is why a market pullback will be a blessing for potential buyers of the stock. The company reaffirmed profit guidance of $3.95 to $4.20 for 2012. The stock is a growth and value play all in one with a bullish chart.

Qualcomm (Nasdaq:QCOM) is trading at the best level since 2000 as several of the old school technology names are coming back with a vengeance. The stock trades with an attractive PEG of 1.03, a forward P/E of 15.15 and a dividend yield of 1.4%. The maker of products for the telecom sector remains on the cutting edge of the industry. Technically, the stock could pull back to support at the $59 to $60 range, where it would create a new buying opportunity.

The Bottom Line
The key here is patience. Wait for the stocks to pull back to the entry point you are comfortable with before considering buying. If the stock does not hit the designated entry range, then simply move on to the next stock on your personal wish list. There are more than enough stocks in the universe, do not force an investment. For additional reading, check out 5 Must-Have Metrics For Value Investors.

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At the time of writing, Matthew McCall did not own shares in any of the companies mentioned in this article.

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