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 Quote): 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.

Input/Output(IO Quote): This company falls in the seismic data space and provides seismic data equipment, software and seismic processing services to the global oil and gas industry. Whether you believe in "Peak Oil" or not, the ongoing demand for more oil reserves is why business in this sector remains so robust. As long as oil stays above $50 a barrel, we expect companies in this group to have strong demand for their services.

The seismic data collection group is ranked fifth in master score and its technical ranking is fourth out of our universe of 275 industry groups.

Several companies in this sector caught our attention, but a larger firm we really like is Input/Output. The stock has a master score of 86 out of 100, and a technical score of 94 out of 100. The technical breakout over $13 (and then $14.25) leads to an entry price between $14.50 and $17.00. Our trading price target is $21, and investors can use $26 as their longer-term target. I am using a stop loss of $12.75.

Input/Output

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Source: Kevin Lane, Fusion Analytics