Here Are The Best Large-Cap Stocks To Buy Now

Since I started helping mutual fund and hedge fund investors pick stocks in the 1990s, I’ve experienced seismic-level shocks, such as 9/11 and the Great Recession, and smaller, yet still meaningful, dislocations, including Long-Term Capital Management’s failure and the Internet Bust.

The current COVID-19 is a similarly heart-stopping crisis. It took just 16 days to enter bear-market territory – twice as fast as it took during the Great Depression or in 1987, when the bear market decline included the biggest single-day drop on record, an over 20% one-day drop on October 19, 1987.

The rapid decline has many saying COVID-19 is unlike anything investors have ever encountered. It’s true investors haven’t navigated a pandemic of this size in a lifetime, but “this time is different” is a common refrain during periods of market crisis. Like in the past, focusing too much on the singular difference of any particular cause of a bear market drop is likely less useful than remembering emotional reactions rhyme, regardless of the catalyst. It’s investor sentiment that drives capitulation and eventually, a recovery.

Back in late January, we highlighted how unbridled optimism had lifted our overbought oversold indicator to frothy levels warranting caution. Following the drop, this indicator recorded an extremely oversold reading in mid-March. Today, it remains deeply oversold with only 6.2% of our 1,500 stock universe trading 5% or more above its 200-day moving average (DMA). Readings can remain at or near extreme readings for weeks, but this measure still says risk/reward favors long-term buyers, rather than sellers.

Source: Top Stocks For Tomorrow.

Undeniably, the current market is scary. Bear market relief rallies often generate 20% plus returns before stalling, so the possibility of a retest because of looming economic contraction this time around shouldn’t be ignored. That’s a big reason why we wrote last week that the mid-term outlook for investors is murky at best, despite our indicators flashing bullish for the short and long term.

Nevertheless, there’s a reason why one of the best-known sayings on Wall Street is “Don’t fight the Fed.” In concert with the Treasury, the Federal Reserve has demonstrated a virtually unlimited capacity to reinflate our economy in the past, and this time, its intervention is massive. Coupled with fiscal stimulus, the government has seemingly shifted the risk of holding overnight to short sellers from those who are long. For this reason, sector, industry, and stock selection are becoming increasing important because it’s more likely we’ll see the market differentiate winners and losers, rather than indiscriminate selling like we saw in March.

In a moment, I’m going to share with you the highest-rated sectors, industries, and stocks in our large-cap universe. But first, I want to quickly explain how we rank stocks.

I explain our methodology more here, but in short, our scores are based upon forward earnings growth expectations, historical trends in reporting earnings that beat Wall Street estimates, insider buying, short-term and long-term institutional money flow, forward valuation relative to historical valuation, contra-trend short interest analysis, and quarterly seasonality over the past decade.

After we calculate individual scores, we aggregate them by sector and industry to highlight the best and worst “ponds to fish in” for new, money-making, ideas.

The best big-cap sectors

The top-rated large-cap sectors are healthcare (Vertex Pharmaceuticals (VRTX), Molina Health (MOH), ICU Medical (ICUI), DexCom, Inc. (DXCM), Biogen (BIIB), consumer goods (J.M. Smucker (SJM), Hormel (HRL), Mondelez (MDLZ), Church & Dwight (CHD)), services (Netflix (NFLX), Electronic Arts (EA), Activision Blizzard (ATVI), Amazon.com (AMZN)), utilities (WEC Energy (WEC), Dominion Energy (D)), and technology (Zscaler (ZS), NetEase (NTES), RingCentral (RNG)). REITs rank neutral, while industrials, financials, basics, and energy score below average.

Source: Top Stocks For Tomorrow.

The best large-cap industries

The best large-cap industries are electronic gaming (Electronic Arts, Activision Blizzard), drugmakers (Biogen (BIIB), Johnson & Johnson (JNJ)), gold (Barrick Gold (GOLD)), packaged foods (J.M. Smucker, Hormel), and healthcare plans (Molina Health, Centene (CNC)).

Taking this one step further, we can rank the best industries by sector:

  • Gold is best in basic materials.
  • Concentrate on packaged foods, household & personal products (Church & Dwight), and beverages (PepsiCo (PEP)) in consumer goods.
  • No energy baskets rank above average.
  • Focus on financial data (MSCI Inc. (MSCI)), insurance brokers (Brown & Brown (BRO)), and credit services (Visa (V), PayPal (PYPL)) in financials.
  • Drugmakers, healthcare plans, and medical instruments (ICU Medical are top-rated in healthcare.
  • Waste managers (Waste Connections (WCN)), tools & accessories (Snap-on (SNA)), and railroads (CSX Corp. (CSX)) offer upside in industrial goods.
  • Specialty REITs (American Tower (AMT)) are best in REITs.
  • The strongest services industries are consulting (Equifax (EFX)), discount stores (Walmart Inc. (WMT), Dollar General (DG)), and education.
  • Electronic gaming, infrastructure software (Zscaler, Akamai (AKAM), Fortinet (FTNT)), and application software (RingCentral, Citrix Systems (CTXS)) are top-ranked in technology.
  • Electric utilities (WEC Energy) can also be bought.

The best large-cap stocks to buy

Because stocks historically follow earnings over time, insiders only buy for one reason; money flow reflects institutional optimism or pessimism, and seasonal patterns often rhyme the highest-scoring stocks offer the best opportunity for upside.

LG CAP

4/9/2020

4 Week MA

Company Name

Symbol

Sector

INDUSTRY

SCORE

SCORE

BEST

Molina Healthcare, Inc.

(MOH)

HEALTHCARE

HEALTHCARE PLANS

100

85

NetEase, Inc.

(NTES)

TECHNOLOGY

INTERNET CONTENT & INFORMATION

100

70

Vertex Pharmaceuticals Incorporated

(VRTX)

HEALTHCARE

BIOTECHNOLOGY

100

77.5

Zscaler, Inc.

(ZS)

TECHNOLOGY

SOFTWARE-INFRASTRUCTURE

100

80

Activision Blizzard, Inc.

(ATVI)

SERVICES

ELECTRONIC GAMING & MULTIMEDIA

95

77.5

DexCom, Inc.

(DXCM)

HEALTHCARE

DIAGNOSTICS & RESEARCH

95

83.75

Electronic Arts Inc.

(EA)

SERVICES

ELECTRONIC GAMING & MULTIMEDIA

95

70

ICU Medical, Inc.

(ICUI)

HEALTHCARE

MEDICAL INSTRUMENTS & SUPPLIES

95

67.5

MSCI Inc.

(MSCI)

FINANCIALS

FINANCIAL DATA & STOCK EXCHANGES

95

76.25

Netflix, Inc.

(NFLX)

SERVICES

ENTERTAINMENT

95

91.25

Biogen Inc.

(BIIB)

HEALTHCARE

DRUG MANUFACTURERS

90

75

RingCentral, Inc.

(RNG)

TECHNOLOGY

SOFTWARE-APPLICATION

90

70

Akamai Technologies, Inc.

(AKAM)

TECHNOLOGY

SOFTWARE-INFRASTRUCTURE

85

67.5

Amazon.com, Inc.

(AMZN)

SERVICES

INTERNET RETAIL

85

72.5

Centene Corporation

(CNC)

HEALTHCARE

HEALTHCARE PLANS

85

83.75

Equinix, Inc. (REIT)

(EQIX)

REITS

REIT-SPECIALTY

85

62.5

Hormel Foods Corporation

(HRL)

CONSUMER GOODS

PACKAGED FOODS

85

77.5

Johnson & Johnson

(JNJ)

HEALTHCARE

DRUG MANUFACTURERS-GENERAL

85

77.5

LogMeIn, Inc.

(LOGM)

TECHNOLOGY

SOFTWARE-APPLICATION

85

67.5

The J. M. Smucker Company

(SJM)

CONSUMER GOODS

PACKAGED FOODS

85

68.75

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Disclosure: I am/we are long AMZN, VRTX, ZS, EA, DXCM, NFLX, PYPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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