Nine Stocks for Playing the Long Side Safely

All of the following names fit these characteristics: They are technically superior (at or near the highest ranks within their industry groups), have good earnings potential, and have a good risk/reward ratio. Consider each of these long plays as three-month to one-year holds. Use the entry points discussed and choose a stop loss that is commensurate with your risk tolerance and time horizon. You should always (always!) honor stop losses.

A note on our quantitative ranking system: We develop a master ranking by combining all of our technical and fundamental scores. The technical metrics include the three time frames of price trend, a money flow score (both individual stock and its industry group), short interest, and directional institutional ownership. The fundamental metrics include an earnings consistency score, and a predicted earnings surprise metric. I'll go into more details about these metrics in future columns.

Now let's look at some of the names we find appealing in the screen:

AON Corp. (AOC - commentary - Cramer's Take): The insurance-broker sector has built a tremendous base post-9/11. The money flow score registers 88 out of 100 -- one of the stronger rankings in our industry group universe. Our favorite within the group is AON. It is the top-ranked stock in the group with a cap over $1 billion. It is reasonably priced with a P/E of 15.4, has a nice yield of 1.4%, and from a technical perspective, $42 was the key breakout level.

Use an entry level between that $42 breakout up to $46. I am comfortable with a stop loss of $40.50 for traders. Longer-term investors could use the 100 day moving average of $38.50 as a stop. Our point and figure (longer-term) price target is $70.

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At the time of publication, Ritholtz was long AOC, IO, SCI, XRX, SCHW, SGP, ABT and WCRX, although holdings can change at any time.

Barry Ritholtz is the chief market strategist for Ritholtz Research, an independent institutional research firm, specializing in the analysis of macroeconomic trends and the capital markets. The firm's variant perspectives are applied to the fixed income, equity and commodity markets, both domestically and internationally. Other areas of research coverage also include consumer, real estate, geopolitics, technology and digital media. Ritholtz is also president of Ritholtz Capital Partners (RCP), a New York based hedge fund. RCP is driven by the analysis performed by Ritholtz Research. Ritholtz appreciates your feedback; click here to send him an email.