The Nasdaq composite was down 3.45% after the big jobs number on Friday. While the overall market reaction to the number helped bring in more sellers, the Nasdaq was under more pressure due to some recent earnings disasters. Stocks like Tableau (DATA) and Linkedin (LNKD) all but got cut in half, with fan favorites like Amazon (AMZN), Netflix(NFLX) and Alphabet (GOOGL) falling to the lows of the year. Alphabet’s earnings were particularly interesting after it smashed earning expectations, but sold off well below the post earnings highs in the following days.  

Trader Phycology

When I see a bloodbath like this I am tempted to catch the knife and jump in on these massive pullbacks. However, this year it feels a bit dangerous as current global economic risks are repricing multiples across the board. Violent reversals tend to make me a more patient investor on the long side, as I will start to shift my eyes to stocks that might be holding up well amidst the downside pressure. Finding stocks that are actually hanging in there amongst all this selling is not easy.

Research

Instead of watching the Puppy Bowl 2016 this year, I elected to go through the closing prices of the entire Nasdaq Composite from the tech carnage on Friday. I searched every sector, looking for anything that was green, hoping to find a stock bucking the 2016 trend. I eliminated any illiquid stocks and stocks under $10. In order to give us confidence in our picks, I cast aside any stock that didn’t have a Zacks Rank of 1 or 2.

My search narrowed it down to three stocks all out performing the Nasdaq Composite by at least 10%. The idea here is that a purchase of these three stocks will be a safer investment then catching the falling knives that are falling all around us. And when a rally comes, these stocks will have an easier ability to push higher as there will be fewer sellers in trouble. Meaning, that when sellers are so far underwater they must sell into every pop, to cut their exposure. With our plan, fewer investors will have this issue helping the stock higher. In addition, overzealous short sellers in these stocks will be forced out with big losses.

Sanderson Farms (SAFM) is a Zacks Rank #2 (Buy) that is a poultry processing company engaged in the production, processing, marketing and distribution of fresh and frozen chicken product. The company distributes to fast food operators in the southeast, southwest and western United States.

Sanderson has a market cap of $1.8 Billion with a Forward PE of 15. The company sports a Zack Style Score of “A” in Value. The stock closed up 1.79% on Friday and is up 14.07% over the last three months.

Friday’s strength in Sanderson was directly related to competitor Tyson (TSN) reporting earnings and guidance. Tyson issued fiscal year 2016 guidance at $3.85-3.95 versus the $3.64 expected, causing the stock to jump almost 10%. Investors naturally bought up Sanderson in sympathy, with their earnings coming later this month on the 25th.
 
While analysts don’t expect the current quarter to be anything special, they are raising estimates for Sanderson for fiscal year 2016. Over the last 60 days, estimates have been revised 1.2% higher, from $5.41 to $5.48.

Ollies Bargain Outlets (OLLI) is a Zacks Rank #2 (Buy) that is a retailer of closeouts, excess inventory and salvage merchandise.
Ollies has a market cap of $1.2 Billion with a Forward PE of 29 and a PEG ratio of 1.5. The stock sports a Zacks Style Score of “A” in Momentum.

The sell off on Friday didn’t faze the stock as it closed in the green, up 0.68%, on no news. The stock is up 22% in the last three months.

The company raised guidance for FY15 earlier this month, guiding $0.69 versus $0.66 expected. Leading up to the guidance, estimates for rose 9.6% for the current year and 5.7% for FY 2017.

Furthermore, the stock has just under 4 million shares short on a 10.5million float, a short interest of 38%. The company has a short ratio of 8.0 making it a potential short squeeze.

Kona Grill (KONA) is a Zacks Rank #2 (Buy) that operates restaurants in the Southwest and parts of the Midwest. The restaurants serve a diverse selection of mainstream American dishes as well as a variety of appetizers and entrees with an international influence.

Kona has a market cap of $170 Million and is in the top 14% of the Zacks Industry rank. The stock sports a Zacks Style Score of “B” with expected EPS growth at 20%.

Amid the selling on Friday, the stock finished up 1.15% to close just above $15 a share. While still down slightly for the year, it is outperforming the indices over the last three months and is well off its 52 week high of $28.66.

The company reports later this month on the 23rd. If they can beat expectations and surprise on EPS to the upside, we should see a rally higher. There is reason to believe this scenario is possible as analyst have raised estimates for the current quarter and year. With the exception of two quarters last year, Kona had a great record of EPS surprises.

In Summary

Instead of catching knives, stick with stocks that have positive price action. When selling pressure subsides, investors will be rewarded and can then go back to the volatility of momentum stocks. Monday morning has giving us another opportunity to look for stocks showing resilience as the Nasdaq is down another 2%. Do some screening, be patient, and pull the trigger when you get your price.

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SANDERSON FARMS (SAFM): Free Stock Analysis Report
 
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