Stocks Priced to Move

Stocks are always priced to move. Too high, they move down. Too low, they move up.

And with the S&P 500 up more than 18% in the 12-month period that ended June 30, and 85 of the 101 industry groups tracked by Dow Jones ending the second quarter in the black, we're starting to hear the drumbeat in the media that stocks are now priced to move ... down.

As The Wall Street Journal wrote in a recent article:

"Investors entered the quarter full of hope; now they are full of anxiety. ... The culprits: a booming world economy that has raised the specter of inflation, and a sagging U.S. housing market that is fueling fears of blowups at hedge funds that invested in securities linked to home mortgages."

But really, who the heck cares?
Yes, there are some legitimate threats to the market's stability. And yes, some valuations do look a little stretched right now. But there are always threats to the market's stability, and there are always valuations that look stretched.

So if you're waiting for the perfect time to invest, you may end up never investing at all. And that's the surest way to make sure you don't make a fortune in the market.

How you can make money ... but only if you're interested
See, fortunes aren't made or lost in any one quarter. Nor are they made or lost in any one year. Fortunes, as it were, are made over decades. That's why, at our Motley Fool Stock Advisor investing service, we aim to buy stocks to hold for at least three to five years.

That's 12 to 20 quarters!

So while the data I'm about to present isn't necessarily relevant to your long-term investing success, it's absolutely relevant to finding new stock ideas. In other words, it's absolutely relevant to your long-term investing success.

What the?
In order to buy stocks priced to move up for decades, you need to buy now. That's right ... today.

Rather than wonder what could have been in the 85 sectors that made money for investors in Q2, take a look at the sectors and stocks that were losers and consider these questions:

1. Why did they drop?
2. Can their problems (if any) be solved?
3. Are these businesses being built to last for decades?
4. Does the valuation look cheap yet?

If you find a cheap valuation at a strong business that dropped for no reason or for some temporary difficulties, then you have a candidate for buy-to-hold.

And lest I make you do the dirty work ...
Here are seven stocks that pass a screen of Warren Buffett's business criteria (maybe you've heard of him) that also declined during Q2:

These stocks aren't necessarily formal recommendations (hey, you still need to run them through the four questions), but they are names worth considering. And I can tell you that Netflix, American Eagle, and bebe have each been recommended in Stock Advisor by Fool co-founders David and Tom Gardner.

So that's one head start right there.

But the real head start
Keep buying stocks even when others are questioning the market's short-term outlook. The key to doing so is that you buy great businesses at good prices. That's what David and Tom have done for more than five years at Stock Advisor, and their recommendations are ahead of the market by nearly 40 percentage points on average.

You can take a look at all of their research, as well as their picks for new money now, by joining Stock Advisor free for 30 days. There is no obligation to subscribe. Click here for more information.

Tim Hanson does not own shares of any company mentioned. The Motley Fool has a hip-hop-happenin' disclosure policy.