Don’t be tempted by oil or travel stocks, Josh Brown says

No hockey, no basketball? No problem. There’s work to be done picking through the rubble left behind by the market demolition, and, crucially, that job requires a different set of guideposts than in more normal times, says Josh Brown of Ritholtz Wealth Management, who cautions that there are a few sectors to totally avoid.

Thursday has brought more carnage to markets already reeling from huge losses over the past couple of weeks in response to the coronavirus pandemic now gripping nations worldwide. Both the Dow Jones and the TSX saw enough selling earlier in the day to trigger so-called circuit breaker temporary halts in trading, to no avail as investors kept up the pace through the rest of the day.

The VIX volatility index climbed to 67 on Thursday, the highest it has been since the financial crisis of 2008, and while some sectors are being hit harder than others, the selloff has truly been across the board from consumer staples and discretionary to financial and technology.

But for those of us with some room to invest, there’s a method to the madness, said Brown, speaking on CNBC’s Last Chance Trade on Wednesday.

“What I do with my trading ideas is I come with a stop-loss and I basically say, well, this is where you pull the trigger and this is where the market’s telling you you're wrong,” Brown said. “[But] in this atmosphere, really, you could throw the charts out the window. You have forced liquidations, you have people selling for unfundamental or uneconomic reasons.”

“So I think the best thing that you can be doing right now is to take a look at the stocks that are non-oil, non-travel and are furthest from their 52-week high. These are the stocks that had the biggest concentration of damage, even today, accelerating. That's where I would begin my list if I were building a stock portfolio from scratch,” said Brown.

Already in a long-term funk, Canada’s energy stocks have been decimated by the current selloff. The S&P/TSX Capped Energy Index has lost almost half of its value in a little under three weeks, with names like Cenovus and Suncor taking direct hits.

The same can be said for names in the airline and travel industries. Air Canada had been flying high and was heralded by many for its successful turnaround in recent years, rewarding investors with huge returns. Now, in less than a month the stock has been cut in half and the gains of the past year and a half have been erased.

Brown said in times of stress a company’s cash flow and debt are a prime issue.

“I’d be looking for names with good balance sheets that are not oil related that have already been wiped down,” he said. “It doesn't mean they're automatically buys, but I think it's a better place to start than looking for relative strength which is what we normally do in a healthier tape.”