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.
Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

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.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

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

Related Articles
  1. Chart Advisor

    3 Ways to Trade the Rising Volatility

    With volatility increasing in the markets, many are turning to these three volatility-capturing exchange-traded products.
  2. Term

    What are Non-GAAP Earnings?

    Non-GAAP earnings are a company’s earnings that are not reported according to Generally Accepted Accounting Principles.
  3. Mutual Funds & ETFs

    ETF Analysis: PowerShares FTSE RAFI US 1000

    Find out about the PowerShares FTSE RAFI U.S. 1000 ETF, and explore detailed analysis of the fund that invests in undervalued stocks.
  4. Options & Futures

    Use Options to Hedge Against Iron Ore Downslide

    Using iron ore options is a way to take advantage of a current downslide in iron ore prices, whether for producers or traders.
  5. Stock Analysis

    Fortinet: A Great Play on Cybersecurity

    Discover how a healthy product mix, large-business deal growth and the boom of the cybersecurity industry are all driving Fortinet profits.
  6. Stock Analysis

    2 Catalysts Driving Intrexon to All-Time Highs

    Examine some of the main reasons for Intrexon stock tripling in price between 2014 and 2015, and consider the company's future prospects.
  7. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  8. Charts & Patterns

    Understand How Square Works before the IPO

    Square is reported to have filed for an IPO. For interested investors wondering how the company makes money, Investopedia takes a look at its business.
  9. Markets

    Why Gluten Free Is Now Big Business

    Is it essential to preserving your health, or just another diet fad? Either way, gluten-free foods have become big business.
  10. Technical Indicators

    4 Ways to Find a Penny Stock Worth Millions

    Thinking of trading in risky penny stocks? Use this checklist to find bargains, not scams.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Profit Margin

    A category of ratios measuring profitability calculated as net ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis ...
  4. Debt Ratio

    A financial ratio that measures the extent of a company’s or ...
  5. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing ...
  6. Net Present Value - NPV

    The difference between the present values of cash inflows and ...
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  3. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  4. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  5. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  6. What is the difference between the return on total assets and an interest rate?

    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!