50 Stocks to Dump and 30 to Watch

In today’s bubble-driven stock market, you want a portfolio anchored by conservative cash and near-cash instruments. You also want some exposure to tangible stores of value, including precious metals. Some stocks of companies with pricing power are worth holding, but most stocks should be admired from afar — not owned — ahead of what is shaping up to be a dangerous bear market.

Fifty Stocks to Dump Ahead of a Bear Market

On the other hand, you should generally avoid the following types of stocks: Consumer discretionary stocks, like retailers and restaurants. There is excess capacity in these sectors of the economy.

In a recession, competition will intensify, prices will fall, and earnings will disappear.

Here are twenty stocks in retail that we are confident you should avoid owning:

  1. Amazon (AMZN)
  2. Tiffany & Co (TIF)
  3. Dillard’s (DDS)
  4. Expedia (EXPE)
  5. Nordstrom (JWN)
  6. Best Buy (BBY)
  7. Five Below (FIVE)
  8. GameStop (GME)
  9. Whole Foods Market (WFM)
  10. Kohl’s Corp. (KSS)
  11. Staples (SPLS)
  12. American Eagle Outfitters (AEO)
  13. Signet Jewelers (SIG)
  14. Office Depot (ODP)
  15. Kroger (KR)
  16. Vitamin Shoppe (VSI)
  17. Macy’s (M)
  18. J.C. Penney Co. (JCP)
  19. Abercrombie & Fitch Co. (ANF)
  20. Weis Markets (WMK)

And here is a list of stocks to avoid in the restaurant business:

  1. Chipotle Mexican Grill (CMG)
  2. Darden Restaurants (DRI)
  3. Domino’s Pizza (DPZ)
  4. Brinker International (EAT)
  5. Texas Roadhouse (TXRH)
  6. Buffalo Wild Wings (BWLD)
  7. Bloomin’ Brands (BLMN)
  8. The Cheesecake Factory (CAKE)
  9. DineEquity (DIN)
  10. Red Robin Gourmet Burgers (RRGB)

Besides retailers and restaurants, which will get squeezed in a recession, you also want to get out of financial stocks like banks and insurers.

The investment case for financial stocks is very weak right now. They’re loaded with explosive risk, and have little upside.

Banks and insurers will suffer from persistently low earnings. It’s clear that a low interest rate environment is slowly squeezing financial business models. High-interest-rate bonds and loans are rolling off, only to be replaced by assets with lower yields.

Asset management companies are trading at high multiples of peak earnings, and earnings always get hit hard in a bear market.

These stocks are likely to get much cheaper in a future of consumer frugality, near-zero interest rates, exploding deficits and persistently high consumer prices. Here is a list of financial stocks to avoid:

  1. JPMorgan Chase (JPM)
  2. Wells Fargo (WFC)
  3. Bank of America (BAC)
  4. HSBC Holdings (HSBC)
  5. Citigroup (C)
  6. Morgan Stanley (MS)
  7. BlackRock (BLK)
  8. MetLife (MET)
  9. Capital One Financial (COF)
  10. Prudential Financial (PRU)
  11. Franklin Resources (BEN)
  12. Sun Life Financial (SLF)
  13. Ameriprise Financial (AMP)
  14. Principal Financial Group (PFG)
  15. Lincoln National Corp (LNC)
  16. Affiliated Managers Group (AMG)
  17. Torchmark Corp (TMK)
  18. W.P. Carey Inc. (WPC)
  19. Zions Bancorporation (ZION)
  20. BOK Financial Corp. (BOKF)

You’ll be well served by dumping these stocks now, and reevaluating them when a bear market has taken stock prices much lower.

Thirty Stocks to Consider Buying AFTER a Bear Market Decline

You can miss out on great investment opportunities if you go all to cash, and stay too defensive throughout a bear market, from top to bottom, to top again.

An all-cash portfolio will lose purchasing power over a long time frame. Over the long run, inflation is inevitable. That is a feature of our paper money system. The younger you are, the higher your allocation to noncash investments should be.

Right now, the stock market is expensive. But history shows that it won’t forever remain this expensive. Bear markets have not been outlawed. And if you’re prepared ahead of a bear market, they can be excellent opportunities to deploy the cash you’ve built up.

How do you know a bear market is over, or near a bottom? There are many signs. But at a minimum, you’d want to see the major averages having already declined at least 20-40%. You’d want to see the financial press constantly publishing bearish stories. And you’d want to have seen a few high-profile corporate bankruptcies (each bear market has at least a few).

By the time you’re seeing these things, many high-quality companies will be available low valuations. Buying good companies at low valuations, and holding them for many years, is one of the best ways to build long-term wealth.

Good companies have pricing power. They also have powerful brands, lasting competitive advantages. They’re even better if they’ve been managed by executives who think like long-term shareholders, and haven’t participated in any bubbles or overpriced acquisitions over the past decade.

Below are some interesting names that all have a good chance of becoming great investments if bought during a bear market.

Here are thirty interesting names to look at as the market hits rock bottom:

  1. Intel (INTC)
  2. Procter & Gamble (PG)
  3. Microsoft (MSFT)
  4. Johnson & Johnson (JNJ)
  5. Verizon (VZ)
  6. Altria Group (MO)
  7. Wal-Mart (WMT)
  8. 3M (MMM)
  9. Lockheed Martin (LMT)
  10. Kimberly Clark (KMB)
  11. General Mills (GIS)
  12. International Paper (IP)
  13. Cummins (CMI)
  14. Paychex (PAYX)
  15. Clorox (CLX)
  16. Becton Dickinson (BDX)
  17. Pentair PLC (PNR)
  18. Ecolab (ECL)
  19. Air Products and Chemicals (APD)
  20. Medtronic (MDT)
  21. Colgate-Palmolive (CL)
  22. Sherwin-Williams (SHW)
  23. Archer Daniels Midland (ADM)
  24. Sysco Corp (SYY)
  25. AT&T Inc. (T)
  26. Emerson Electric (EMR)
  27. Cardinal Health (CAH)
  28. McCormick & Co. (MKC)
  29. Automatic Data Processing (ADP)
  30. Leggett & Platt (LEG)