Daily Gains Letter

defensive stocks


This Top Stock a Poster Child for Consistency

By for Daily Gains Letter | Apr 17, 2014

My Top Stock for Long-Term Investors to Rest EasyThe chase for high-beta stocks appears to be fading at this juncture, as we are seeing a shift in the risk profile to lower-beta and more conservative large-cap stocks in the stock market.

After the staggering gains made by technology and small-cap stocks in 2013, it’s time to take a prudent approach to the stock market and refrain from chasing risk at this time.

We are seeing a move to consumer staples stocks that tend to fare reasonably well in both up and down stock markets.

While I favor small-cap stocks in an up stock market, the current tension in the stock market makes it dangerous to pursue risk. This is a time you need to be in defensive stocks.

The big banks, consumer staples, and industrial sectors look decent for those wanting to continue to invest at this time. Momentum and growth should be avoided for now.

If you are looking for a singular stock market play that offers diversity and a defensive approach, take a look at time-tested General Electric Company (NYSE/GE), which has offered investors steady returns in the majority of periods since its beginnings in 1892.

General Electric (GE) is precisely what you want in this type of market. It’s extremely well diversified across many industries and geographical areas around the world.

The company prides itself on producing steady results to shareholders. Its management strategy is to hire CEOs for 20-year time spans that allow for stability.

GE is the poster child for consistency in corporate America.

The company isn’t going to make you rich in a short period of time in the stock market, but … Read More


Time to Ditch Swinging Cyclicals?

By for Daily Gains Letter | Apr 4, 2014

investment strategyThe stock market appears to be getting somewhat top-heavy. Scanning through my screens, I am quite amazed to find that the majority of S&P 500 stocks are well above their respective 200-day moving averages, which makes opportunities much more difficult to come by for the average investor who might look at their portfolio once a week or month.

But the buying in the stock market has still largely been with the technology, growth, and small-cap stocks, due to the higher potential to make quick money versus investing in blue chips or industrial companies.

In 2013, we saw staggering upside moves in some of the momentum stocks, such as Google Inc. (NASDAQ/GOOG), priceline.com Incorporated (NASDAQ/PCLN), Netflix, Inc. (NASDAQ/NFLX), and Chipotle Mexican Grill, Inc. (NYSE/CMG). These are the top players in their respective areas.

But that was then. Now, we are seeing a renewed interest in some of the safer names in the stock market, which is why the Dow Jones and S&P 500 outperformed in March.

My view is that while there will still be money to be made in some of the more speculative and momentum plays in the stock market, we could also see a pause for investors to digest the gains made.

Cyclical stocks, or those companies that swing with the economy, are still worth a look, but should the economic renewal stall and jobs creation dry up, it might be time to look elsewhere. Here I’m talking about those sectors such as auto, furniture, retail, travel, and restaurants.

Everyone is spending when all is good and people are making money on the stock market, but spending will … Read More


U.S. Economy Getting Better; Should You Jump into Cyclical Stocks?

By for Daily Gains Letter | May 20, 2013

U.S. Economy Getting BetterAs the risks in the stock market increase, investors most often run towards defensive stocks. The main reason behind this phenomenon is that companies that are considered defensive provide investors with a stream of dividends, even when the markets, as a whole, crumble. They are generally strong players in their industry, with healthy market shares and stable earnings year-over-year.

The stock market rally, which began in March 2009, was born on a significant amount of pessimism. At the time, when the key stock indices like the S&P 500 bottomed, there were still concerns about whether the financial system was able to get back on its feet, or if the U.S. economy could avoid a depression: unemployment was staggering, consumer spending was crushed, and businesses were struggling to sell and earn profit.

This resulted in investors rushing towards defensive stocks. Below is the chart of the Utilities Select Sector SPDR (NYSEArca/XLU) exchange-traded fund (ETF). This is just a one example of where investors rushed to.

Utilities Select Sector Chart

Chart courtesy of www.StockCharts.com

The utilities sector is considered to be defensive because the companies in the sector sell what people usually need. In times of economic slowdown, they might just decrease the amount of a certain product used, but can’t really stop using it; for example, electricity providers are considered to be defensive stocks in the utilities sector.

Moving forward to now, the reasons investors rushed into defensive stocks are running out. The U.S. economy is getting better—or at the very least, there is some progress that suggests it is moving towards economic growth. Why? Unemployment is much lower, the housing market is slowly recovering, … Read More


Should Investors Play Catch-Up with the Key Stock Indices?

By for Daily Gains Letter | May 10, 2013

Investors Play Catch-Up with the Key StockOn May 7, the Dow Jones Industrial Average closed above the 15,000 level for the first time. This close marked an overall increase in the index of about 15% since the beginning of the year. Other key stock indices did the same, and at the very least, their performance was nothing shy of exuberant.

It may be good news for some, but this rise in the key stock indices leads to one question: if investors missed out on these gains, should they jump into the stock market and take a risk playing the catch-up game?

While this may be the very first option that comes to the mind of an investor who is planning to invest for the long term and hasn’t seen their portfolio perform similar to the key stock indices, they must ask themselves this before taking any action: is it really the most viable option? The answer to this question is very simple: no.

Instead of trying to play the catch-up game due to a significant rise in the key stock indices over a short period of time and taking higher risks, investors need to keep their long-term goals in mind. As I have been saying in these pages; long-term stable growth is far better than volatile gains in the short term.

If an investor believes the key stock indices will continue to rise, they should continue to focus on minimizing their risk. Instead of investing in small-cap, highly speculative companies, they need to look for defensive plays.

Why? As the key stock indices are rising, there is a possibility that there might a correction in prices; … Read More