When Strong Hands Prevail


The stock market's correction from its May 21 all-time high and modest rebound in the past month bring to mind the old saying about "stocks in strong hands."

As the thinking goes, strong-hand investors know the companies they own really well and believe their long-term merits outweigh short-term risks. Stocks owned by such investors tend to hold up better during a downturn, then lead the market up during the early days of the next rally. As a market downturn wears out the weak hands — speculators with little conviction about a company — strong-hand investors step in to acquire shares.

When investors accumulate large positions in strong-hands stocks, the supply of shares available to everyone else is limited. Even a slight boost in demand can cause shares to jump as momentum investors buy in.

Although the S&P 500 Index has advanced 2.6% in the last month, it remains 5.3% off its May 21 peak. 328 stocks in the index linger below where they traded on May 21, including 184 stocks down more than 10%.

Yet the breadth of the market's recent rally is encouraging, with 357 stocks in the S&P 500 (71% of the index) up in the past month. Nine of 10 sectors have seen one-month gains, with utilities and energy up at least 6% on average.

Flip to Chart Scan to check out stocks that appear to be in strong hands, based on their market-beating performance amid the recent volatility. In Value Focus we identify stocks that got swept up in the sell-off but appear capable of rebounding.

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