You knew it was coming. When all the market gains were in a small group of crowded momentum stocks, you know that a day of reckoning for not only those stocks, but the market as a whole, was near. The question is, was Thursday’s sell-off just another up and down move in the sideways trend that started last November, or is it a signal for a far deeper plunge?

A new report from the very bright Savita Subramanian and her staff at Merrill Lynch points out that the large outperformance in July of the high-momentum growth stocks pushed the growth-to-value outperformance gap to 6.5% so far this year, the widest gap for this point in the year since the tech meltdown in 2000.

The bottom line is the momentum run may be over, and it is time to take profits and rotate to quality stocks. We screened the Merrill Lynch holdings in the Consistency and Predictability stocks list, and found four that could make great additions now. All are rated Buy at Merrill Lynch.

Nike

This stock has had an outstanding summer so far, up a sizzling 6.6%. Nike Inc. (NYSE: NKE) is a worldwide athletic giant that makes the list as top consumer discretionary name. It posted very strong fiscal fourth-quarter earnings when it reported in June. The company also has outstanding potential upside from a turnaround in its China business, improvements in gross margins and continued innovation-driven market share gains in both basketball and running footwear. With one of the most recognizable brands in the world, long-term investors may do very well adding shares here despite the big move up in the stock this year.

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Nike is benefiting from consumer preferences for “athleisure.” With the company’s extensive product line and recognizable worldwide branding, the stock continues to roll year-after-year.

Nike investors are paid a 1% dividend by the sporting apparel giant. The Merrill Lynch price target for the stock is $120, and the Thomson/First Call consensus price target is $117.30. Nike closed at $112.30 Thursday.
UnitedHealth

This is a top stock to buy in the rapidly consolidating managed health care sector. UnitedHealth Group Inc. (NYSE: UNH) offers the full spectrum of health benefit programs for individuals, employers and Medicare and Medicaid beneficiaries. It contracts directly with more than 800,000 physicians and care professionals and 6,000 hospitals and other care facilities. The company offers a broad spectrum of products and services through two distinct platforms: UnitedHealthcare, which provides health care coverage and benefits services, and Optum, which provides information and technology-enabled health services.

The company has posted outstanding earnings over the past year, and it is one of the companies that limited exposure to the public exchanges.

UnitedHealth investors are paid a 1.65% dividend. The Merrill Lynch price target is $150, while the consensus target is $146.68. The shares closed Thursday at $119.79, down almost 3%.

Disney

This top consumer media company has multiple streams of income that got absolutely hammered after earnings that were less than expected prompted a big fear that consumers are “cutting the cable cord.” Walt Disney Co. (NYSE: DIS) has the movie studio business poised to improve, as with accelerating theme park business, the network programming continues to drive viewership with extensive sports programming. Most importantly the company produces tons of content that will keep them a long-term media alternative, and recently announced that Star Wars-themed lands will be coming to Disneyland park and Disney’s Hollywood Studios at Walt Disney World Resort in Orlando, Fla.

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The Disney Media Networks segment operates broadcast and cable television networks, domestic television stations and radio networks and stations, and it is involved in the television production and television distribution operations. Its cable networks include ESPN, Disney Channels and ABC Family, as well as UTV/Bindass and Hungama. This segment also owns eight domestic television stations. Disney is also one of 24/7 Wall St. top 10 stocks to own for the next decade.

Disney shareholders are paid a 1.23% dividend. The Merrill Lynch price target remains $130, and the consensus target is $121.30. The stock closed Thursday at $100.02, down almost 6%.

Cognizant Technology Solutions

This tech stock is well-liked across Wall Street. Cognizant Technology Solutions Corp. (NASDAQ: CTSH) provides IT consulting, and business process outsourcing services worldwide. The company operates through four segments: Financial Services; Healthcare; Manufacturing, Retail, and Logistics; and Other. It offers consulting and technology services, such as IT strategy, program management, operations improvement, strategy, and business consulting services.

While Cognizant is based in the United States, it primarily uses an offshore workforce in India. The company is well positioned for a variety of trends in IT services, and many expect it to increase earnings well in excess of the industry average. The company’s solid second-quarter results were broad based. In addition, the company raised second-half guidance and is a solid conservative technology holding to add.

The Merrill Lynch price target is $75, about the same as the $74.80 consensus figure. The stock closed trading on Thursday at $65.70.

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We have maintained all along that a day of reckoning for overbought momentum was at hand. While Thursday’s sell-off stung, the stock market is still the logical venue for investing now, and these quality stocks make good sense for growth investors.

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