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Bear Market Rebels: Stocks That Have Gone Up During the Market Decline

By Jim Fink on August 22, 2011

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The broader market could suffer another 10 percent correction over the next few weeks. But investors should regard any dips as a buying opportunity.

– Elliott Gue, Cocktail Stocks
 
(June 3, 2011)

Since July 21st, the S&P 500 (NYSE: SPY) has fallen 16.30%, a staggering decline in less than one month’s time. Although the S&P has not yet dropped 20%, which is the threshold for a bear market, other stock indices already have dropped 20% or more, including the small-cap Russell 2000 (NYSE: IWM) (-22.2%), the S&P Mid-cap 400 (NYSE: MDY) (-20.2%),  Market Vectors Russia (NYSE: RSX) (-23.8%), and iShares MSCI Germany (NYSE: EWG) (-25.6%).

Bear markets typically shoot stocks first and ask questions later. The baby is thrown out with the bathwater. Numerous companies have announced earnings that beat analyst estimates and also raised their forward earnings guidance only to see their stocks decline anyway — e.g., Autodesk (NasdaqGS: ADSK).

In such a treacherous market, what really gets my attention are those select few stocks that have somehow been able to buck the negative-stock-market tsunami and actually rise in price. Several academic studies have demonstrated that stocks exhibiting “relative strength” compared to the overall market continue to outperform going forward. In fact, stocks exhibiting technical strength have on average outperformed the S&P 500 by a factor of 4.5 times over a 15-year period!

I’m not talking about stocks like Motorola Mobility (NYSE: MMI) that have risen on news of a takeover offer, however. A stock that receives a credible cash takeover offer at $15 above its current price will go up by an amount close to $15 even if the market collapses by 1,000 points or more. But that’s a one-time deal and after the stock rises on news of the takeover, there usually is no second act –unless a bidding war erupts like in the case of Dynegy (NYSE: DYN). Since I’m looking for stocks that may continue to outperform the overall market, takeover stocks are eliminated from my search.

I’m also not interested in inverse ETFs (especially the leveraged variety) that go up when the market goes down, because the market is already way down and could bounce at any moment, which would slam these ETFs.

Lastly, I want to exclude “flight to quality” and “apocalypse” ETFs like those related to gold bullion (NYSE: GLD), U.S Treasuries (NYSE: TLT), and stock-market volatility (NYSE: VXX) because these investments’ upward momentum will quickly disintegrate once the market stabilizes.

No, I’m interested only in those stocks that have done well during the market crash because they reflect strong underlying businesses that can continue to outperform in the current economic slowdown that threatens to turn into a recession

Utilizing my trusty Bloomberg terminal, I screened for all such strong stocks with market caps of at least $1 billion that have risen in price between the July 21st high in the S&P 500 and last Friday’s market crash low (Aug. 19th):

Market Crash Rebels: Stocks that Have Gone Up

Company

Stock Performance

(July 21st to August 19th )

Comments

Arcos Dorado Holdings (NYSE: ARCO)

7.48%

Company name means “golden arches” in Spanish. Argentine company is the largest franchisee of McDonald’s restaurants in Latin America.

Regal Entertainment Group (NYSE: RGC)

6.29%

People go to movie theaters to escape from economic reality.

Terra Nitrogen (NYSE: TNH)

6.15%

In a low-yield world, investors flock to this 9.4% dividend yielder. Company produces agricultural fertilizer, which continues to be in strong demand to combat a global food crisis.

Advance Auto Parts (NYSE: AAP)

5.23%

During tough economic times, car owners buy replacement parts to repair their beat-up vehicles rather than purchase new versions.

Giant Interactive Group (NYSE: GA)

5.19%

Internet role-playing fantasy games are wildly popular in China.

Source: Bloomberg

Buy Stocks Showing “Relative Strength” with the Help of Cocktail Stocks!

High “relative-strength” stocks tend to keep outperforming the overall stock market. Elliott Gue, co-editor of Cocktail Stocks loves to look for catalysts such as relative strength; in fact, they are one of Elliott’s favorite buy triggers.  As he wrote in an advisor roundtable:

When researching growth-oriented companies I look for catalysts. There’s no point in buying or selling a stock that’s just going to trade sideways or follow the broader market in lockstep.

If you are looking for a short-term trading service that can spice up your investment returns with some quick winners in three to nine months’ time, Cocktail Stocks is just what the doctor ordered.

Right now, Elliott Gue and co-editor Yiannis Mostrous are recommending eight stocks primed to deliver double-digit gains quickly. Past gains include 41.7% for Patriot Coal (NYSE: PCX) in less than a month’s time! To find out the names of their latest picks, give Cocktail Stocks a try today!

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