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Editor's note: To view the stock screen mentioned in this column, download the free MSN Money Investment Toolbox.
The world's markets are poised for a broad-based rally with Barack Obama's presidential win.
With U.S. stocks pulling back today after a big Election Day gain, that may seem a bold prediction. But my reasons are simple.
In the short term, at least, stocks respond to sentiment more than fundamentals. For example, even in the face of an oncoming recession, the recent downdraft sank many stocks to prices much lower than justified by their fundamental outlooks.
With Obama's win, the same thing could happen in reverse. Whatever the reality, in many people's minds, the Democrat represents hope for a better future.
That's true globally, not just in the United States. Polls in Russia, Germany, Spain and even China tell the same story. People around the world express optimism that Obama, as president, would change U.S. foreign policy for the better. Further, the win by the Illinois senator proves to many doubters that the American dream is alive and well.
Those positive feelings should be reflected in stock markets, pushing share prices higher in the U.S. and around the world. Eventually, that excitement would diminish, and the market will go back to worrying about how business is going.
Those financial worries are serious, and they could keep the market down. But it's not what I expect. Here's a screen that can help you find stocks likely to participate in an Obama rally.
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The broad view
Like the rally I expect, this screen is broad-based. It doesn't look for alternative-energy stocks or anything along those lines. Themes such as those will take time to play out.While it doesn't exclude them, the screen doesn't try to pinpoint the most beaten-down stocks either. There is no evidence to suggest that, in a rally, stocks that have lost the most would outperform.
Instead, as is the case for most successful selection strategies, my Obama rally screen is simple in concept. It seeks out historically profitable companies with solid, long-term growth prospects.
Here's what is different: The screen requires cash-rich companies with no debt. Such stocks are most likely to ride out any further credit market somersaults unscathed.
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3 stocks for a post-election tech rallyMSN Money's Jim Jubak says concern about the election is holding back stocks. But barring a worst-case scenario in the election, the market could climb, with tech stocks leading.
Not too small
Since I expect a broad rally, there is no point in limiting the field to any particular company size. That said, the smaller the company, the riskier the stock. Even in a strong market, there's no reason to go overboard in terms of risk.Most investors use market capitalization (share price multiplied by number of shares outstanding) to measure company size. Market cap is how much you'd have to shell out to buy all of a company's shares. There is no uniform definition, but stocks with market caps below $1 billion or $2 billion are considered small caps, and stocks above $10 billion or so are large caps. Those in between are midcaps.
I arbitrarily set my minimum at $1 billion. Try cutting that figure to $500 million if you want to see more stocks. Raise it to $2 billion if you want to reduce risk.
Continued: Screening parameters
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