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Posted February 02, 2021

Scott Stewart

By Scott Stewart

Your Conviction Buy List

Welcome to the Rude Awakening for February 2, 2021

The major stock indices are up this morning, extending gains and looking like we might see back-to-back sessions with further advances.

However, retail traders top stock picks (like GameStop and AMC) are dropping.

As Yahoo Finance reports:

The Dow added more than 350 points, or 1.2%, while both the Nasdaq and S&P 500 jumped more than 1%.

Silver futures (SI=F) fell more than 6%, after derivatives exchange CME Group increased margins on Comex silver futures by nearly 20%, Bloomberg first reported, in a move that would increase the cash needed to trade the contracts. The commoditys prices soared on Monday to breach $30 per ounce, touching its highest level in eight years as some online traders pivoted to target silver after last weeks surge in heavily shorted stocks.

Many of the stock picks popularized on Reddits r/wallstreetbets forum last week extended Mondays losses, giving back more of last weeks sharp gains. GameStop (GME) sank more than 40% following a 31% slide on Monday, bringing the stock down to about $130 per share from a peak of $483 last week. AMC (AMC), Express (EXPR) and Koss Corporation (KOSS) also added to losses.

Despite the pullback in these names, some strategists noted that the increased retail participation that made headlines over the past couple weeks may remain in markets.

While there are reasons why retail investor trading has surged suddenly, (zero commission trading, lockdowns/social distancing, stimulus checks, and colder temperatures) ... we believe a structural change may be afoot and that retail investors are likely to remain bigger players in the U.S. equity market going forward, RBC Capital Markets strategist Lori Calvasina wrote in a note Tuesday. The big upward moves in certain small cap stocks are likely temporary in early 2021, but we suspect that retail interest in trading specific names will continue to ebb and flow, just as it has done over the past year.

Like I told you last week, you do NOT want to get into these reddit hot picks.

Instead, today I have X stocks that meet all four real criteria for triggering a buy.

These are picks that demonstrate researched and proven potential for gains.

Lets dig in

What Criteria Do We Want to Look at?

The four criteria were using are:

  1. Technicals

The technical analysis through the MACD, stochastics, relative strength index (RSI), all give us buy signals.

  1. Inner circle

Insider trading happens every day. Its legal as long as its reported to the stock exchanges and the SEC. What are called highly compensated individuals in a company have the ability to buy and sell company stock, they just have to make it public record. So, because of this, we can see whether company insiders are buying or selling.

  1. Valuation

We look at P/E ratios, price to book ratios, price to sales ratios. These numbers need to be in line to constitute a buy.

  1. Fundamentals

We need to see strong earnings reports, growth, profitability. And we want the companys trend to be going up.

When all four of these criteria align, we get a conviction buy watchlist.

And here they are:

First Community Corporation (NASDAQ: FCCO)

MercadoLibre, Inc. (NASDAQ: MELI)

Skyline Champion Corporation (NYSE: SKY)

Intel Corporation (NASDAQ: INTC)

Myomo, Inc. (NYSE: MYO)

APi Group Corporation (NYSE: APG)

These are 6 stocks you definitely want to consider for a buy.

Have a great rest of your trading day.

Well talk tomorrow.


Scott Stewart

Scott Stewart

Editor, Rude Awakening

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