Four Stocks for the Next Correction

06/26/2017 2:54 am EST

Focus: STRATEGIES

Charles Carlson

Editor, DRIP Investor

I think there are plenty of reasons to be bullish long term on stocks. The corporate earnings rebound is positive, and corporate profits may be the single most important factor in driving stock prices higher over time, says Chuck Carlson, editor of DRIP Investor.

Inflation and interest rates are net bullish as well. The primary trend of the market is still bullish, according to the Dow Theory. And there remains a healthy amount of skepticism and caution on this market, which is a positive.

While I don’t believe a shift to a bearish trend is imminent, I do believe the chances have increased for a secondary correction within an ongoing bull market, and investors should be prepared for such a development.

 Does that mean investors should sell and attempt to dodge the correction? No. Trying to avoid 5%-8% market movements is very hard to do successfully over time and will likely cause a lot more damage to your portfolio than simply riding through the correction.

Preparation in this case means building a watch list of stocks to consider during the next stock market correction.

The short list below represents some of my favorite stocks that would be especially attractive during the next market correction.

Hasbro (HAS)
Nordson (NDSN)
S&P Global (SPGI)
Zoetis (ZTS)

Nordson is a midcap stock that has pulled back recently and is offering an interesting choice. The company manufactures products and systems to dispense, apply, and control adhesives, coatings, and polymers; its products are used in electronics, medical, and industrial applications.

Per-share profits have beaten the consensus estimate in each of the last four quarters. Nordson should show decent growth in revenue and per-share profits this year and next, and I like the company's long-term growth profile.
Nordson, along with the other stocks listed above offer direct-purchase plans whereby any investor may buy the first share and every share directly.

I’ve always been a big fan of data companies. Such firms typically have high profit margins and barriers to entry. One stock in the data area that I find especially attractive is S&P Global.

The firm provides independent ratings, benchmarks, analytics, and data to the capital and commodity markets worldwide. The firm has beaten earnings estimates in each of the last four quarters, and I expect record profits for this year and next.

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