A unique way to pick stocks in tough markets

With only a handful of S&P 500 companies in the green this year, it’s become difficult to determine which names will make a safe bet. And as investors question the future of specific stocks, one portfolio manager says they should instead be looking to the past.

Kim Forrest of Fort Pitt Capital said her current stock-picking strategy is to evaluate whether current leadership has experienced tumultuous markets, and how they managed during previous sell-offs.

“It’s good to see who has been able to navigate their ship through really rocky shores before, so that’s what we’re doing. We’re looking for management that has been here before,” Forrest said Thursday on CNBC’s “Trading Nation.”

The companies that pass Forrest’s test include VF Corp, Urban Outfitters and Microsoft.

“You might roll your eyes” since some of the names have had tough years, Forrest allowed. Both Urban Outfitters and VF have fallen more than 20 percent in the past year. However, she reiterated that strong leadership at these companies should be a key incentive to investing in these stocks.

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VF has demonstrated a history of well-managed supply chains and brand marketing, she said. Urban Outfitters excels at running retail stores and catering to millennials. And while Microsoft CEO Satya Nadella has only been at the helm for a couple years, Forrest said, he’s stayed with the company through multiple rough transitions.

“There’s a deep bench of executives that have been through tough times, and we think the future is really bright for them,” she said of Microsoft.

While leadership is an important factor in choosing stocks, investors should also remember to focus on growth prospects, said David Seaburg of Cowen and Co.

“Management teams are only one aspect of it,” Seaburg said Thursday on “Trading Nation.” “You’ve got to look at the fundamentals of these companies, the businesses they’re involved in and understand the growth opportunities that exist five years out. Making those bets now will pay off tremendously long term.”

Disclosure: Fort Pitt Capital owns shares in VFC, URBN and MSFT through its fund and Forrest personally owns MSFT stock.