Daily Gains Letter

blue chips


Considering Dumping Stocks? Why You Should Reconsider

By for Daily Gains Letter | Apr 9, 2014

Investment StrategyI’m starting to receive more questions regarding the state of the stock market and whether it’s simply a bout of profit-taking or the set-up of a deeper stock market correction.

First of all, panicking is not what you want to do. Yes, we are seeing some selling surfacing, but that doesn’t necessarily mean you should go and dump stocks.

After the year we had in 2013 and the fact that the bull stock market is in its fifth year and devoid of a major question despite the advance, it would not be a surprise to see some selling.

Also, with bond yields beginning to rise, we will see a reduction in the assumed risk and will likely see a shift of capital into bonds and away from the stock market as yields rise.

The reality is that the stock market is already seeing a decline in the assumed risk in 2014. Technology stocks and small-cap stocks are no longer the stars of Wall Street this year.

We are seeing a lack of market leadership and extreme selling on the momentum stocks, which clearly is a red flag. The concern is that the drop-off in the momentum stocks is significant and could likely extend lower since the rise was euphoric.

Instead of seeking added returns, we are seeing a move towards safety as traders are shifting capital to blue chips and large-cap stocks that are better equipped to withstand a stock market sell-off and have largely proven themselves over decades.

On the charts, the NADSAQ and Russell 2000 are down more than two percent in April versus a less than one-percent … Read More


Why a Soft First Quarter Offers Hope

By for Daily Gains Letter | Apr 3, 2014

Silver LiningThe first quarter, by all accounts, was a dud, especially if you were invested in blue chip stocks as the Dow Jones Industrial Average retracted 0.74% in the quarter.

Yet March also saw some shifting of capital from higher-risk assets into blue chips and large-cap stocks, as the NASDAQ and Russell 2000 underperformed with declines of 2.53% and 0.83%, respectively.

But the muted gains in the first quarter do offer some hope heading forward, especially if the stock market can attract some leadership and if the economic outlook and jobs numbers can improve. For instance, the S&P 500 led the way in the first quarter with a 1.32% advance (or a 5.28% advance on an annualized basis). By comparison, in 2013, the index had already surpassed this level of advance by March.

Given the muted results to date, we could see much better gains in the quarters ahead, but much will depend on several variables that currently cast a cloud over the stock market.

First, the Fed is continuing to cut its quantitative easing and the consensus is that the bond purchases will dwindle to zero by year-end. While this is discounted by the stock market, traders are more concerned about when the Federal Reserve will begin to increase interest rates. The early thoughts are for rates to rise sometime in the first half of 2015.

Yet Fed chairwoman Janet Yellen gave the stock market a lift on Monday after suggesting the central bank would do whatever is necessary to make sure the economic renewal and jobs growth continue unabated. Now, this could imply that the bond buying could continue … Read More


How to Profit from the Dow’s “Dogs”

By for Daily Gains Letter | Feb 10, 2014

Small-cap stocksSmall-cap stocks are faring the worst this year and are down nearly 10% from their record-high in late 2013; many would deem this to be an official stock market correction.

Given that small-cap stocks surged upward by more than 33% in 2013, it shouldn’t be a surprise to see this group get the brunt of the selling this year.

Higher-beta stocks, such as small-cap stocks or growth stocks, tend to outperform when the stock market is moving higher, but they are more vulnerable to downside weakness. This is the risk you assume when investing in small-cap stocks.

The reality is that the associated risk of buying stocks is intensified with small-cap stocks, which is why you also need to make sure you have some proven large-cap stocks in your portfolio to help alleviate some of your overall portfolio risk.

I’m not saying that you should avoid small-cap stocks in their entirety, but I do think you should look at adding some large-cap or blue chip stocks if you are devoid in this area.

The advantage of larger companies is that we know these businesses have a proven long-term track record and will likely be around decades from now, whereas small-cap stocks are more vulnerable and may not recover during an economic and market relapse.

A large company can easily absorb several quarters or even years of underperformance but small-cap stocks would have a much more difficult time doing this because they have fewer financial resources.

A classic example of a large company struggling but managing to pull out was McDonalds Corporation (NYSE/MCD). The company faced issues in the 1970s and … Read More


Boost Your Returns with These Small-Caps

By for Daily Gains Letter | Jan 9, 2014

Dividend-Paying StocksFor most investors, the past year was about the search for higher-risk assets with the potential for achieving higher returns. This desire helped to propel the NASDAQ and Russell 2000 to returns in excess of 30%, while dividend paying stocks lagged in performance.

Now as we move along in 2014, we could see buying shift to more conservative stocks that pay a dividend to investors. The shift to these stocks could accelerate as comparative bond yields rise, making income investors choose between bonds and dividend stocks.

As an investment strategy, you can consider buying the large-cap dividend plays, such as General Electric Company (NYSE/GE) or The Procter & Gamble Company (NYSE/PG).

But while buying large-cap blue chips always makes sense to your overall portfolio strategy, you can increase your portfolio’s overall potential returns by adding small-cap dividend stocks. By doing so, you can usually add in higher capital appreciation potential.

And while there are numerous small-cap dividend plays in the financial and industrial sectors from which to select, I’d like to highlight a couple above-average stocks that you may want to examine further. As I said, these smaller companies offer dividends and higher capital appreciation potential.

In the area of investment management, a mid-cap company that looks like it may make a good addition to your portfolio is Och-Ziff Capital Management Group LLC (NYSE/OZM), which has a strong dividend yield of 6.7%. The stock has also advanced 61% to shareholders over the past 52 weeks; the S&P 500 returned just 25%. In the third quarter, Och-Ziff managed to beat the Thomson Financial consensus estimate by $0.07, reporting $0.27 per diluted … Read More


Three Reasons Why Institutions Are Buying Stocks and Why Investors Need to Be Extremely Cautious

By for Daily Gains Letter | May 1, 2013

Investors Need to Be Extremely CautiousVery soon, the stock market will be overbought. It’s time to be extremely cautious.

Even in the face of mixed earnings and economic news, institutional investors keep buying this market. And while fundamentals don’t particularly support a rising stock market, there are a number of reasons why institutions have to buy. Here are just three of the reasons:

1. They Have the Money

There is a tremendous amount of cash sitting on the sidelines. Both individual and institutional investors have been very frazzled over the last few years, and corporations have, as well.

Earnings results from large mutual funds and investment corporations recently revealed billions of dollars of new cash inflows allocated to equities. That money has to be put to work, because that’s what customers are paying for.

2. There Is Nowhere Else to Go

Because interest rates are so artificially low, there is no other asset class, other than real estate, where investors can allocate their capital and expect to get a return that is greater than the rate of inflation.

Even if the stock market doesn’t do anything and corporations don’t show any growth in earnings, dividend payments and share buybacks are very well assured.

Institutional investors need to invest in this stock market, because bonds, currencies, and commodities no longer offer the right combination of income, safety, and prospective capital gains. This is why so many blue chips have been outperforming—they offer what the rest of the world does not.

3. They Have to Keep Up with the Joneses

Without a doubt, a herd mentality exists on Wall Street. Investment companies have been chasing the safest … Read More


Dow Jones Industrials Still Hot; How to Play the Correction

By for Daily Gains Letter | Mar 18, 2013

180313_DL_clarkAction in the stock market is robust. Some economic news has shown improvement, but really, investors are just betting on first-quarter earnings.

The Dow Jones Industrials have been strong, outperforming the other indices and revealing how skittish investors are about the stock market’s advance. Investors are buying Johnson & Johnson (NYSE/JNJ) because it’s safe. When the party ends, Johnson & Johnson is less risky.

Institutional investors are betting on stocks because there really isn’t anywhere else to go. The bond play is over, currencies are too risky, and the commodity price cycle is taking a break. While it does seem unbelievable, the Dow Jones Industrials will likely keep ticking higher before the month is out.

While the action is hard to believe, considering the Main Street economy, the Dow Jones Transportation Average is still plowing ahead, leading the rest of the stock market. Regardless, this is the classic sign of further strength in share prices.

The stock market is not expensively priced, and it’s up to corporate earnings to tick higher, so they we don’t create a bubble. Practically, as a stock market investor, it doesn’t pay to fight the Federal Reserve or the tape. The action is the action; if you want to play the market, “why” doesn’t matter too much.

But if you’re an investor and you own, or would like to own, shares in blue chips like the Dow Jones Industrials, it’s tough to be a buyer when the stock market is at all-time highs.

I wouldn’t buy this market, but when there is a major correction, it will be an interesting opportunity to consider. Of course, … Read More