Five S&P 500 Stocks To Buy As Rally Hits Resistance

Stocks closed in the red on Monday, ending a five-day winning streak. More significantly, the S&P 500 moved below 2,000 after hitting this key psychological level on Mar 4 and 7. This is probably the first major challenge that markets have run into since this recovery. It leads to the view that markets may simply experience higher volatility in the days ahead or a major selloff. 

In such a scenario, picking value stocks that have a low beta from the S&P 500 might be a prudent option. Beta measures the tendency of a stock's performance to respond to market swings. Low correlation stocks provide protection during turbulent times as they are less prone to day-to-day fluctuations.

Mid-February Surge on Crude’s Rebound

A section of market watchers believe that markets have recovered considerably from the lows experienced in early February. The losses suffered on Monday are only the events of a single trading day. Indeed, the Dow gained 6.6% from the low it hit on Feb 11 while the S&P 500 increased nearly 7% despite Monday’s losses.

February’s gains were powered by a resurgence in oil prices. Prices gained due to two major factors, talks of production controls among major oil exporters and favorable crude data. During the fourth week of February, WTI crude increased 10.6%, witnessing its highest gain since August.

Resistance Ahead

Due to these developments, Nymex crude surged 45% by Mar 7 from the Feb 11 low. Iron ore gained 19% even on Mar 8 while Nymex crude lost 3.7% to close at $36.50. Such substantial gains are hard to ignore. However, several analysts believe that stocks could not test key resistance levels.

The three-week long surge had begun with a recovery and transformed into a period marked by short covering and purchases of cheap stocks offering good value. But stocks could face difficult times now.

According to Asbury Research, the 1994 to 2023 band presents a series of resistance points for buyers. It is here that markets must decide whether this is the beginning of a midterm incline or the start of a short recovery within a longer decline over the intermediate term.  

More Volatility in the Cards

Most market watchers are closely watching the S&P 500’s 200-day moving average, presently at about 2022. However, this metric has consistently moved lower, indicating that the bull market rally is running out of steam. According to market technicians at BTIG, gains experienced recently have been substantial. However, this is how a bear market rally looks initially, believes the financial services company.

Other technical analysts believe that the key level to watch for the S&P 500 is 1970. This is because it denotes the uptrend line from the lows hit in February. In case stocks fall below this level a selloff could ensue. 'Til such an event occurs, markets would continue to experience volatility.

Our Choices

At this point, analysts and market watchers remain divided over where the market is headed. However, the intermediate position seems to be most plausible and markets may witness higher volatility in the days ahead.

Picking value stocks with low beta from the S&P 500 could be a safe bet in the days ahead. Our selection is also backed by a good Zacks Value Score and Zacks Rank.

We narrowed down our choices with the help of our new style score system.

Our research shows that stocks with a Value Style Score of ‘A’ or ‘B’ when combined with a Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy) offer the best investment opportunities in the value investing space.

Edison International (EIX - Analyst Report) is the parent holding company of Southern California Edison (SCE). Edison International is also the parent company of subsidiaries that are engaged in competitive businesses related to the delivery or use of electricity.

Edison International holds a Zacks Rank #2 (Buy) and has a Value Style Score of ‘B’. The stock has a P/E (F1) of 17.63x, lower than the industry average of 17.87. The stock has a beta value of 0.15.

Michael Kors Holdings Ltd. (KORS - Analyst Report) produces a diverse assortment of products including handbags, watches, accessories, jewelry and fragrance products and footwear under two labels, Michael Kors and MICHAEL Michael Kors.

Michael Kors holds a Zacks Rank #2 and has a Value Style Score of ‘B.’ The stock has a P/E (F1) of 12.99x, lower than the industry average of 17.37. The stock has a beta value of 0.21.

Entergy Corp. (ETR - Analyst Report) is primarily engaged in electric power production and retail distribution of power.

Entergy holds a Zacks Rank #2 and has a Value Style Score of ‘B’. The forward price-to-earnings ratio (P/E) for the current financial year (F1) is 14.19, lower than the industry average of 17.87. The stock has a beta value of 0.45.

Target Corp. (TGT - Analyst Report) is a diversified health and well-being company.

Target holds a Zacks Rank #2 and has a Value Style Score of ‘A’. The stock has a P/E (F1) of 15.32x, compared to the industry average of 20.96. It has a beta value of 0.58.

UnitedHealth Group Inc. (UNH - Analyst Report) is a diversified health and well-being company.

UnitedHealth Group holds a Zacks Rank #2 and has a Value Style Score of ‘A.’ The stock has a P/E (F1) of 15.73x, compared to the industry average of 16.40. It has a beta value of 0.62.