Some of you know me as “the ratings guy” at Money and Markets. I use the proprietary Weiss Ratings as a useful tool in assessing stocks for my Weiss Million-Dollar Ratings Portfolio.
The Weiss Ratings Model, which is based on objective standards such as earnings and revenue growth, has helped to steer me away from companies whose shares may be rising but whose fundamentals are weak. And it also gives me increased confidence in those stocks that I do pick. But the assessment of stocks on an individual level is just one way I use the Ratings Model in my analysis.
The Model also draws my attention to the industries that are most likely to outperform. It gives me a notion of how much the market’s movements are supported by fundamentals — and that tells me when to add and reduce exposure.
So what is the Model telling me now?
We’re looking at a situation similar to that of last spring. Stocks have risen, while the Model’s bullishness has deteriorated. At this point, I would not call it a danger sign, but more of a yellow light.
What I’m seeing is weak earnings mitigated by better-than-expected economic readings. Still, the concern of “what will the Fed do next” overshadows everything.
But that’s OK. The confusion in the market gives us the opportunity to drop the laggards and buy the leaders.
During this period of uncertainty, I think the most important action for investors will likely be inaction on days when the market is volatile and rising, and calculated action on down days. (For the latter, that means buying economically sensitive stocks in tranches rather than all at once.)
I’d say we’re in a sort of holding pattern, but I expect prices to continue to come back down to earth over the coming weeks. And that’s when we can start picking the best stocks from the most promising industries for what I forecast will be a very interesting market year in 2014.
In coming weeks, I’ll be profiling a couple industries that I think require more attention, and I’ll make a decision as to how much risk I want to take on, given that equities are close to an all-time high.