Get Back on Top With These Stocks

"We reached the floor of this market at 1:01 p.m., August 16, 2007."

Who said it?

Rule No. 1: Do not attempt to time the market
There is a floor to this dastardly market out there somewhere. But I'm not going to print with a time or a place. While some people apparently do feel comfortable with such prognostications, it's not advisable to try.

Why? It's pretty much impossible to gauge where the market swings in the near-term and even more impossible to do it on a consistent basis. According to a well-cited 1984 Harvard Business Review article by Robert Jeffrey, "No one can predict the market's ups and downs over a long period. Furthermore, due primarily to the market's upward bias, the risks of trying outweigh the rewards."

Rule No. 2: Buy the best to hold
To earn better returns in the stock market, try following Rule No. 2. That's it. Today, in this gloomy market, glance at your watch list of companies and peek into their financial health. How have they been faring in these tumultuous recent weeks? If the business remains strong while the stock price has been slashed, you should be buying.

Why? Well, if you have sold out, you're not only missing out on lower-priced stocks, you've also all but assured yourself that you're going to miss out when the market turns the corner.

Consider the table below of some of the worst investment periods in American history, and the five-year returns that followed. These moments of chaos provided some of the most lucrative periods to be buying stocks:

Lest I be considered a fanatic, the recent drop in American markets does not indicate a depression, great or otherwise. Rather, these events should be used to illustrate a larger point: Don't let current market conditions scare you away from stocks.

Rule No. 3: Stick with the fundamentals
With the near-term outlook for stocks clouded, remember these points when considering your next move:

• Terrible investing environments often provide the best entry points.
• If the price has changed, but fundamentals have not changed, then a stock is just as attractive -- if not more so -- than it was previously.
• Continue to invest new money in the market even if you own the stocks that are being hit hardest.

Stocks worth a look
If you're looking for stocks to buy in the current environment, start with great brands that have high price tags and wait for them to dip. Under Armour (NYSE:UA) comes to mind as an emerging brand that's worth watching.

Also look for companies that are growing free cash flow on a yearly basis and don't have debt burdens that could be their undoing if the economy weakens. Here are five stocks that meet these criteria and have earned a place on my personal watch list:

Get up, stand up
These companies have something in common. They are leaders in their particular fields and they will likely survive all the ups and downs that the market will inevitably see in years to come.

At our Motley Fool Stock Advisor service, Fool co-founders David and Tom Gardner look for many of the same traits in the companies they recommend our subscribers buy to hold. Their picks are beating the market by more than 35 percentage points on average, and you can take a look at the names they're recommending for new money now -- yes, even in the current market -- by joining the service free for 30 days.  

Click here for more information.

Fool analyst Nick Kapur owns no shares of any of the companies mentioned. Under Armour and Secure Computing are Rule Breakers recommendations. MasterCard is a former Inside Value recommendation. The Fool has a disclosure policy.