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How to Invest During a Stock Market Correction

8 min read

  • (0:30) – Massive Stock Market Correction
  • (2:40) – What To Learn From The Late 1990’s Bull Market
  • (9:00) – Strategies For A Stock Market Sell Off
  • (12:30) – Tracey’s Top Picks: Are Stocks On Sale?
  • (20:30) – Takeaways: Podcast@Zacks.com

Welcome to Episode #118 of the Zacks Market Edge Podcast.

Every week, host and Zacks stock strategist, Tracey Ryniec, will be joined by guests to discuss the hottest investing topics in stocks, bonds and ETFs and how it impacts your life.

In this episode, Tracey actually went solo to discuss what investors should do during a stock market correction.

It’s been 2 years since there was this sharp type of volatility in the stock market. Some investors who only started buying stocks in the last 18 months, have never seen a 10% stock market correction.

3 Strategies Investors Can Take During Stock Market Corrections

1.      Do nothing. If you’re a long-term investor, and not a trader, then a quick downturn isn’t going to matter much. Does anyone remember the week the Dow lost 6% in 2016? I didn’t think so.

2.      Buy more stocks. You know what they say, “buy when there’s blood in the streets” and there has been some blood with this correction. Some stocks have gone on sale, perhaps there are some opportunities?

3.      Sell and get out. If you’re having trouble sleeping at night or have other anxieties because of movements in the stock market, then you may need to re-examine your investments to determine if stocks are where you should be.

But if you’re willing to jump in when others are jumping out, maybe you should take a look at some stocks that are on sale.

Tracey did a quick look at Zacks Rank #1 (Strong Buy) and #2 (Buy) stocks, which hopefully means they have rising earnings estimates, and combined it with a share price that has sold off in the last week.

These 6 stocks are hardly the entire list. This is just a start.

But given that the correction has impacted every sector, these stocks represent a cross section of industries.

6 Stocks That Have Gone on Sale

1.      Lumber Liquidators (LLFree Report) has fallen 15% year-to-date but it hasn’t reported earnings yet. Earnings are expected to rebound 162% in 2018 with revenues up 7.4%.

2.      DR Horton (DHIFree Report) is getting beat up on fears that rising mortgage rates will put a damper on the housing market. Shares are down 10% year-to-date. It trades with a forward P/E of only 12 even though earnings are expected to jump 30% in fiscal 2018.

3.      JP Morgan Chase (JPMFree Report) has given up a lot of its 2018 gains, which presents a buying opportunity. Thanks to tax reform and rising interest rates, it’s expected to grow earnings by 29% in 2018. Yet it only trades with a forward P/E of just 12.3.

4.      H&E Equipment Services (HEESFree Report) hasn’t reported earnings yet, but the equipment rental business should be strong in 2018 with the economy booming. Shares are down 6.3% year-to-date.

5.      EOG Resources (EOGFree Report) is one of the larger exploration and production companies. It hasn’t reported earnings yet but analysts think there will be earnings growth of over 250% in 2018 as crude prices appear poised to remain over $60. If you didn’t get in last year, perhaps the recent pullback in energy stocks is your opportunity?

6.      Micron (MUFree Report) has been cheap for a year but shares have weakened on fears that business would slow in the second half of the year. But it surprised the Street by raising second quarter revenue and EPS guidance as the memory chip pricing environment remained robust. Micron is trading at just 4x earnings and remains down 3% year-to-date.

There are plenty of other stocks also on sale in this correction.

Now’s the time to check out the Zacks Rank #1 (Strong Buy) list of 233 #1 Rank stocks.

What else should you know about investing during a stock market correction?

Listen to this week’s podcast to find out.

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