Market Report: Investing in Blue Chip Stocks:Buy the sugar high (but ditch the toxic treats)

Abstract:
Just as most parents make an attempt to weed out the most noxious tidbits from the kids’ goodie bags, an investor should try to pick companies that will weather the hysterical fits (oops! pardon me: I am still thinking about the kids here)… make that the inevitable volatility that always accompanies an overcharged market.

In this article:
- The blue chips are building toward a massive new high as the Fed is pressed to drop rates – again!
- Not every stock will survive the volatility that will follow close behind.
- Here are six stocks that will gain now, and keep their gains later.

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Investing in Blue Chip Stocks:Buy the sugar high (but ditch the toxic treats)

Contrary to popular opinion, I am not a bear. Really, I’m not! In fact, right about now, I see numerous signs that the great herd is about to buy many well known blue chip shares up to new all-time highs within days.

From an economic standpoint, I suppose one could state all sorts of reasons to doubt the sanity of doing so, what with the critical shortage in liquidity and sky-high commodity and energy prices.

Heck, half the economists in a recent WSJ poll figure we’ll be mired in recession within months. In another poll (again from those fine folks at WSJ), two thirds of Americans think we are already in one now.

Apparently none of those polled buy American stocks, because my WaveStrength charts indicate that virtually every sector is warming up for a major upside run. I suppose 10 million flies can’t be wrong.

Seriously, stock buyers have one singular principle in mind right now: Recessions hurt now, but inflation hurts later. Believe it or not, futures traders are already betting that the Fed will lower rates again when it meets on October 30 and 31, providing the stock market with yet another cheap sugar high.

Now every parent who has ever tried to get the kids to settle down after they have scarfed down 267 miniature chocolate bars knows exactly how this story ends: First they go crazy, then they get weepy, and then they crash. The solution is to stock up now on aspirin (that’s for you now) and real healthy food (that’s for them later).

Now, just as I wouldn’t dream of standing between a horde of ravenous trick-or-treaters and their candy fix, I don’t advise you to stand in the way of a hyperkinetic market that wants its shares right now, thank you very much!

But do be somewhat selective. Just as most parents make an attempt to weed out the most noxious tidbits from the kids’ goodie bags, an investor should try to pick companies that will weather the hysterical fits (oops! pardon me: I am still thinking about the kids here)… make that the inevitable volatility that always accompanies an overcharged market.

Last week, I noted several “toxic candies” to ditch, specifically, Home Depot (HD: NYSE), General Motors (GM: NYSE), Best Buy (BBY: NYSE) and Bank of America (BAC: NYSE). It’s not that they absolutely won’t rise. It’s more a question of whether or not they will rise consistently enough for a normal soul to actually garner gains.

On the flip side, stocks you might care to pick up over the next couple of days include defense companies like United Technologies (UTX: NYSE) and Raytheon (RTN: NYSE), business oriented REITS like Simon Property (SPG: NYSE) and Kimco (KIM: NYSE) and Tech players like Hewlett Packard (HPQ: NYSE) and Texas Instruments (TXN: NYSE).

Any and all of the above look to inherit a fair share of the Fed’s largesse. Share price gains over the next two quarters could easily hit double digits here. What’s more, these companies are the proverbial “solid meal” and will in all probability keep most if not all of their gains when the hangover sets in. And, as always, select call options will leverage those gains by an order of magnitude.

Adam

Investing in Blue Chip Stocks: Outside links

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