When All Stocks Are Falling, How Do You Spot the Best Bargains?

The major market indexes (as of Nov. 20) have given back all of their gains for 2018. So if you're an investor who had been holding off on adding to your portfolio when valuations were looking a bit frothy, the sharp declines have probably put you back in a mood to buy. But for one such investor -- and fan of Motley Fool Money -- this opportunity contains a conundrum. He has five stocks sitting at the top of his watchlist, and only enough cash on the sidelines to add one new position.

Beyond the reasons that put them on his radar in the first place, what factors should he -- and you -- consider when trying to decide on the best option now? In this segment of the podcast, host Chris Hill and analysts Aaron Bush, Matt Argersinger, and Jason Moser offer some advice.

A full transcript follows the video.

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This video was recorded on Nov. 16, 2018.

Chris Hill: Our email address is radio@fool.com. Question from Isaac Melon, who writes, "The recent market volatility has created a good problem for me. Several stocks on my watchlist have dropped significantly. The problem I have is little cash on the sidelines to take advantage at the moment. I want to make a purchase of one of these stocks to add to my IRA. I'm 24 years old, so I have a long timeline. What is the best way to separate the wheat from the chaff?" He includes five stocks on his watchlist, which are down anywhere from 10% to upwards of 25%. As he said, Jason, that's a good problem to have. But let's kick this around for a minute. What's a good way, when you're in this situation, to say, "Alright, I've got some money, I really only have money for one purchase." Do you go with the one that's down the most?

Jason Moser: Reading this question, I must admit, this first thing I went to was the It's Always Sunny in Philadelphia episode where they're actually arguing about what is better, being the wheat or the chaff. With all of that said -- because I'm still not sure, actually -- I'd lean more toward the one that you don't own yet, if possible. If you have a watchlist of stocks and you whittle it down to five stocks that you really like, perhaps consider the one that you don't own for the sake of diversity. Now, if you own them all, you have to go with, if I ask you the question, "Which one of these businesses do you like the most?" Probably, one's going to come to mind. That might be the one you want to lean toward.

Also, be very aware of the businesses that run in cycles versus the ones that don't. I'll use energy as an example here. With businesses that run in cycles, you need to be more aware of where we are in the cycle and where the cycle could go.

Aaron Bush: I would just add that sometimes, some of the best, especially growth-oriented companies, tend to get hit the most when the market is volatile. So, that's where I tend to look. A lot of times, they rebound the hardest, too.

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