investment strategies
Top Stocks to Consider Right Now: Defensive and Dividend-Paying Stocks
By George Leong for Daily Gains Letter | Mar 27, 2015
Success in the stock market is all about balancing risk and reward. Too much risk and you leave yourself vulnerable to added downside when the stock market turns, as may be the case at this time. However, too little risk and you don’t fully partake in the upside moves of the stock market, though your downside risk is lessened. The key is to understand the stock market we are in and alter your investment strategy accordingly.
Prior to the flush in the stock market on Wednesday, technology growth and small-cap stocks were leading the broader market higher this year. Yet as we also witnessed, the higher-beta stocks were also vulnerable to added selling on Wednesday.
What happened on Wednesday (and what happens on other down days, too) indicates what could happen to higher-beta stocks during a stock market sell-off.
While the stock market seems to want to go higher, there’s also a sense of hesitancy surfacing that will likely make gains much more difficult to come by this year. This is the time when you want to review your portfolio and determine the associated risk. If you have made some pretty good profits with higher-beta stocks, you may want to shift some capital from these higher-risk momentum stocks to lower-risk, low-beta stocks.
This is probably not the time to pick up stocks like Google Inc. (NASDAQ/GOOG), The Priceline Group Inc. (NASDAQ/PCLN), Netflix, Inc. (NASDAQ/NFLX), and Twitter, Inc. (NASDAQ/TWTR).
What you should be looking at are some of the large-cap cyclical stocks that trade with the economy and jobs. Instead of technology, here we have sectors such as automotives, furniture, retail, … Read More
Top Three Sectors to Profit from Weak Oil Prices
By George Leong for Daily Gains Letter | Mar 23, 2015
Oil prices are on the downside, and we could see West Texas Intermediate (WTI) oil decline to the $40.00 level and below.
A few years ago, the mere mention of oil in the $30.00 level would have been viewed as silly, as many believed $100.00-a-barrel oil prices would be the norm.
But here’s the problem: the advanced fracking technique to squeeze out oil from the cracks in the rock led to a revolution in oil production, which inevitably is hurting oil prices. The good news: it’s creating an investment opportunity for aggressive investors.
Pressures Pushing Oil Prices Downward
Now, we have massive domestic oil production from the shale oil in Montana and North Dakota that has helped to produce a flood of oil inventory. So much so that the ability to store the excessive oil will likely not be possible, which means continued cuts in rigs and production.
So far, more than 800 rigs have been shut down. Based on the growing stockpiles, I fully expect hundreds of additional rigs to be axed. We could see thousands if oil prices stay at the $40.00 level.
The Organization of Petroleum Exporting Countries (OPEC) is continuing to maintain its production quota, trying to force U.S. oil producers to continue to cut rigs. This strategy appears to be working, but not at the faster rate the oil cartel wants to see.
At this juncture, we could see oil prices at the $30.00 range or even lower if the supply/demand imbalance continues and the global economy also continues to stall.
Investment Opportunities to Profit from Weak Oil Prices
A move of oil prices down … Read More
How to Profit from the Major Stock Market Correction Coming Your Way
By George Leong for Daily Gains Letter | Mar 20, 2015
The stock market continues to want to edge higher, but beware. I still sense there will be more downside moves that will provide a trading opportunity. At this juncture, I would be looking for sell-offs in the stock market and chaos.
Just like what we saw in 2008 when the stock market and big banks crashed, when a stock market correction comes, there will be aggressive trading opportunities for more active traders.
Stock Markets Down, but Bigger Adjustments Ahead
The strengthening dollar will make American goods and services more expensive for exports, which will likely result in a squeeze on the profit margins of multinational companies that do much of their business in the eurozone. The dollar would likely test parity with the euro, which in itself is a trading opportunity to play the European companies that benefit from the weak euro.
On the energy front, the basis West Texas Intermediate (WTI) oil declined to the $44.00 level after news of a record surplus in U.S. crude inventories and the fear that there will not be enough storage to hold the oil. Again, we could see oil move towards the $40.00 level. Take a look at strong energy companies that are currently under distress, but may be worth a look longer-term. If you think oil will rally over the next two years, you could look at call options expiring in January 2017 that will give you ample time for oil to rebound.
On the stock market charts, the S&P 500 and DOW remain below their respective 50-day moving averages (MAs). Small-cap stocks continue to attract new buying, as the Russell … Read More
How Tech Growth in 2015 Is Different from 2000 (and Why It Will Last)
By George Leong for Daily Gains Letter | Feb 18, 2015
The last time I saw 5,000 on the NASDAQ was way back in early 2000, prior to the collapse of the technology sector and all of the froth and euphoria on Wall Street. If you were trading back then, you would have recalled the staggering froth and frenzy that drove the technology sector to heights that were simply not sustainable and excessive.
Well, it took more than a decade, but it looks like the technology sector is on a roll again. I have been bullish on technology stocks as the top growth area in my outlook for this year and so far, this is panning out.
NASDAQ Push to 5,000 Much Different Now Than 15 Years Ago
The NASDAQ traded at its highest level since 2000 last Thursday, when the index came within 160 points, or 3.3%, of taking out the 5,000 level. A break above 5,000 would be a big deal for the technology sector.
Chart courtesy of www.StockCharts.com
Of course, the ascent of Apple Inc. (NASDAQ/AAPL) to nearly $130.00 a share and a staggering market cap of $741 billion is helping the index, providing stock market leadership.
As we near 5,000, there will be talk again of an exhausted and euphoric technology sector akin to 2000, but things are different this time around. The push to 5,000 has taken much longer and has been steadier versus 15 years ago, when everyone was buying without any thought to valuation or the underlying fundamentals.
I vividly remember seeing the big moves everyday and what I thought was the senseless buying of the technology sector. I recall friends taking out loans … Read More
Cyber Defense Stocks a Boon for Investors in 2015?
By George Leong for Daily Gains Letter | Feb 13, 2015
The growth of the Internet has been one of the top advancements in history. But with this good news comes the darker side, namely cyber attacks that cost billions of dollars in damages along with non-monetary impacts. Millions of Americans have gotten their personal data stolen over the past few years, and it will likely only worsen. There’s also the threat of cyber attacks on key government and intellectual assets.
But with the threat also comes a potential investment opportunity in cyber defense.
President Obama just requested another $14.0 billion to improve the government’s safeguards. Could you imagine foreign threats hacking into our nuclear installations and military? The threat is real.
Think about what happened to Sony Corporation (NYSE/SNE), when its database was broken into, costing the company about $100 million. There were also the major breaches to The Home Depot, Inc. (NYSE/HD) and Target Corporation (NYSE/TGT). And just last week, the database at Anthem, Inc. (NYSE/ANTM), the country’s second-largest insurer, was hacked, impacting its 80 million clients.
Cyber Security Stocks a Boon to Investors in 2015?
Cyber security companies are attracting focus as an investment opportunity. The catalyst that will drive up the share price of these stocks will be security attacks that continue to plague companies and governments around the world and cause excessive monetary damage.
In the mid-cap area, an investment opportunity to look at is FireEye, Inc. (NASDAQ/FEYE), which was just hired by Anthem to help protect against further attacks. The company has a current share price of around $39.00.
FireEye has been a favorite on Wall Street following its debut in September 2013. The stock … Read More
How to Prepare for the Stock Market Sell-Off I’ve Been Warning About
By Sasha Cekerevac for Daily Gains Letter | Feb 7, 2014
Well, that didn’t take long! Just a few weeks ago, I wrote an article stating that investors should begin to worry about the lofty level of the stock market. Since that time, the S&P 500 has dropped by more than five percent in less than two weeks.
This market correction won’t be a surprise to my readers, as I have been suggesting investment strategies that can help prepare your portfolio for a large downswing in the market for some time now.
When I wrote the article in late January, the S&P 500 was surging, even though the preliminary Thomson Reuters/University of Michigan index of consumer sentiment dropped month-over-month. Since then, we have seen additional data coming from China showing that its economy is beginning to slow.
The Markit/HSBC China Manufacturing Purchasing Managers’ Index (PMI) for January was 49.6, much weaker than expected. (A PMI data point below 50 denotes a contraction in activity.) While many analysts have been expecting China to begin accelerating, this recent data is a dose of reality, as manufacturing jobs in China dropped for the third consecutive month. (Source: “HSBC China Manufacturing PMI,” Markit Economics, January 30, 2014.)
I know what you’re thinking; “Why should investors in the S&P 500 care about what happens in China?” A market correction doesn’t occur based on a single event. When you’re trying to develop investment strategies, especially if you are considering the potential for a market correction in a large index, such as the S&P 500, you have to take many factors into account, as if you’re working on a jigsaw puzzle.
First ask yourself, what are the positive … Read More
Another Five Percent Down for the S&P 500, at Minimum?
By George Leong for Daily Gains Letter | Feb 3, 2014
Though making money is important, that’s not the be-all and end-all behind smart investment strategies. Just think about the common phrase “a dollar saved is a dollar earned.”
Success in trading and investing means you need to be aware of both the upside and downside risks, such as we are seeing now as the stock market moves lower.
In general, investors should hold off on buying for now until we see some solid opportunities. Trading volume is rising on the down days, which confirms the selling pressure. As well, the Dow Jones Industrial Average has declined for five straight sessions, losing nearly four percent in that time.
A look at the chart of the S&P 500 makes me nervous. The index is searching hard for technical support on the chart after dropping below both its 50-day and 200-day moving averages (MAs), as shown on the chart below. The break, while worrisome and bearish, is not a big deal unless we fail to see the emergence of any strong oversold technical buying support.
You want to see high volume on the buy side, as it shows mass market participation and a willingness to buy. Light volume would not be conducive to a sustainable buying support.
Now, as a chartist, one needs to watch several key technical support levels where there has been some buying in the past. The first is around 1,770. Failure to attract sufficient buying support here could see the S&P 500 run downward toward the key 1,700 level, last encountered on October 15, 2013.
Chart courtesy of www.StockCharts.com
Should the S&P 500 decline to 1,700, it would translate … Read More
Three Ways to Prevent Irrationality from Entering Your Portfolio
By Moe Zulfiqar for Daily Gains Letter | Oct 21, 2013
There’s always something investors are worried about. Recently, we heard about the U.S. government reaching the debt limit, shutting down, and inching close to defaulting on its debt. Investors reacted, and the key stock indices started to slide lower due to concern over what could happen.
Now, with a deal being struck to extend the debt ceiling and budget deadlines, those worries are over, meaning U.S. creditors will get their interest payments and the government will go on operating as usual.
This all brings one very critical question to mind: how can investors save their portfolio from situations like these?
In situations where investors are unsure about what will happen to their portfolio, they can follow these three simple investment strategies. These strategies can help investors not only rationally decide on what to do with their portfolio; but they may even find an investment opportunity as a result.
1. Assess the Situation
Take the recent debt ceiling issue, for example. There were concerns that Congress wouldn’t come to a consensus and the U.S. government would have to tell its creditors that they can’t pay them, causing bond prices to decline and portfolios heavy on bonds to suffer massive losses. But what a lot of investors forgot was that the U.S. economy has gone through similar acts many times before, having passed the debt ceiling 78 times.
The lesson here is that investors need to see whether or not the event/situation they are worried about is going to affect their portfolio in the long run. If it doesn’t—and historically, it hasn’t made much of an impact—they should just wait and see … Read More
The Basic Principle Smart Investors Shouldn’t Forget
By Moe Zulfiqar for Daily Gains Letter | Sep 5, 2013
Over the Labor Day weekend, I met up with my old friend, Mr. Speculator. As always, we had a debate about portfolio management. We had a long conversation about what really is the right way to manage your investments—and, for that matter, if there is any. Should investors invest 40% of their portfolio in bonds and 60% in stocks? Should it be the opposite? Or is there another possible combination?
He said, “Moe, I am a firm believer in going for the fences every time for now, but do you really think I will continue to have the same approach in the long run?” (Turns out, there’s actually a rational investor in Mr. Speculator.)
“The answer is very simple: no,” he added. “When it comes to portfolio management, investors really need to realize there isn’t really a one-size-fits-all approach. I take risks now because I can afford to, but for those who are close to retirement, this is certainly not the way.”
I disagree with Mr. Speculator on many aspects of portfolio management, but on this, I can’t help but agree. Portfolio management differs from one person to another, and the amount of risk an investor should take also operates the same way.
A person who is 50 years old and has accumulated a significant amount of funds in their retirement account should not be taking the same risk as a person who is in their late twenties.
A person who has saved money for their retirement and are closing in on their golden years should be conservative with their investments. They should have more of a focus on assets … Read More
How to Protect Your Portfolio from Fluctuations and Profit from Rising Oil Prices
By Moe Zulfiqar for Daily Gains Letter | Aug 20, 2013
Not too long ago, the per-barrel price of oil was hovering close to $85.00. Now, a few months later, it trades above $107.00; this is an increase of roughly 25% in a fairly short period of time.
One may ask why this matters, and what it means for the overall U.S. economy.
At the most basic level, the price of oil has a very deep impact on consumer spending, which makes up 70% of the gross domestic product (GDP) of the U.S. economy. It impacts consumers in two ways.
First, let this be clear: while the average American Joe doesn’t use crude oil in raw form, he does use it in the form of gasoline in his car. Oil and gasoline prices have a direct relationship; together, they shrink the size of consumers’ pockets. When oil prices increase, consumers end up spending more at the pump and less on goods they want to buy. Note the black line in the chart below: it shows gasoline prices per gallon, and their movement along with oil prices.Take a look at the chart below to get a better idea about surging oil prices:
Chart courtesy of www.StockCharts.com
Second, when oil prices increase, they cause the transportation costs to go higher as well. Eventually, the increased costs are transferred to customers; this makes goods and services more expensive, and their dollar buys less than what it did before.
So how can investors profit from increasing oil prices?
When oil prices go up, different sectors react in different manners. This means some are highly affected, while others, not so much.
Consider the airline industry: what … Read More
The Alternative Asset Allocation Plan Every Investor Needs
By John Whitefoot for Daily Gains Letter | Aug 13, 2013
When it comes to investing, everyone wants to be in the best performing asset classes. Unfortunately, few, if any, are that good at consistently choosing the top performing asset classes to add to their retirement fund year after year. That’s why diversification is so important.
Riskier investments like stocks provide the best returns over the long term; they also happen to be the most volatile asset. Bonds, on the other hand, are much safer, and, as a result, offer very little when it comes to returns. By combing different types of investment strategies among different asset classes, investors can generate profit and reduce risk levels to meet their retirement goals.
To help minimize the risk of human error, emotions, and uncontrollable outside factors and to maximize long-term performance, investors concentrate on asset allocation—the art of spreading out their money in stocks, bonds, commodities, cash, and, for some, real estate.
The old asset allocation equation used to suggest people keep a percentage of bonds equal to their age in their retirement fund, with the remainder in stocks; a 40-year-old, for example, would park 40% of their investments in bonds and 60% in stocks. But since no two people have the same financial needs, it’s pretty hard to have an asset allocation strategy that works for everyone. The fact of the matter is that it’s up to each individual to find an asset allocation risk level that meets their long-term portfolio needs.
That can be difficult to do in this climate. In spite of weak economic news and high unemployment, the S&P 500 and Dow Jones Industrial Average are hitting new highs. … Read More
Take These Three Crucial Steps to Grow Your Portfolio
By Moe Zulfiqar for Daily Gains Letter | Aug 2, 2013
A few days ago, I went out for lunch with a friend whom I haven’t seen in a while. He is an active investor who manages his own portfolio. In the past few years, he has done very well for himself, to say the least; the returns on his portfolio have been amazing, and much better than what the key stock indices have provided. This intrigued me, so I asked him how he was able to do all of this in a fairly short period of time.
His response was very short and simple. “You see,” he said, “while many investors look for the ‘ten baggers’ or ‘home runs’ and get emotionally attached to their position, I focus on an approach that’s the complete opposite.”
“What I have seen in my experiences in the past, and I see it very often, is that investors have expectations beyond reality,” he explained. “They want the highest return in the shortest period of time by risking a lot. You have to be very lucky to see robust portfolio growth over time with these types of investment strategies.”
With this strategy in mind, here are three crucial steps investors should follow to grow their portfolio.
1. Be on the Lookout and Act Accordingly
Investment opportunities are present all the time, no matter what kind of market it may be. Be it a bull market, bear market, or range-bound market, investors need to know what kind of investment strategies to use. Bringing back my friend’s example, he knew the direction the markets were following was to the upside, so he traded his way through in … Read More
Two Tips for Making Your Profits Rise as Lending Declines
By Moe Zulfiqar for Daily Gains Letter | May 1, 2013
According to the Federal Reserve’s data compiled by Barclays PLC, in the first quarter of 2013, total consumer loans at the biggest U.S. banks fell 0.6%; they declined 0.2% at the smaller banks. (Source: Fitzpatrick, D. and Raice, S., “Drop in Borrowing Squeezes U.S. Banks,” Wall Street Journal, April 25, 2013.)
Similarly, business lending in the U.S. economy is weak, as well. In the first two weeks of April, outstanding loans by the big banks to U.S. companies declined nine percent when compared to the end of March. In the first quarter, lending to businesses only increased 2.7%.
Why does it really matter?
To say the very least, consumers and businesses shying away from borrowing suggests the U.S. economy may be heading towards an economic slowdown. This is mainly because the U.S. economy is dependent on consumer spending, as it makes up more than 70% of the gross domestic product (GDP).
In times of economic growth, consumers have jobs for the near future, and they are able to spend and borrow for things they want. Likewise, when consumers are spending, businesses need to meet the demand, and as a result, they borrow to either invest in new plants or buy new equipment.
Next, this phenomenon of consumers and businesses not borrowing shows that big banks can run into troubles ahead. At their very core, banks are in the business of lending; they take deposits from their customers—those who save—and lend them to others. Less borrowing from customers will eventually shake their core business, forcing them to cut costs to stay profitable.
As bad as these situations may sound, investors actually … Read More
How to “Short Sell” Without the Risk and High Costs
By Moe Zulfiqar for Daily Gains Letter | Apr 24, 2013
It isn’t a hidden fact that investors can make money when stock prices go down. One way to do this is by shorting shares of companies that investors believe won’t perform well because profits will be lower, sales will be stagnant, and so on and so forth.
No doubt, short selling is beneficial when stock prices are falling, and it certainly lets investors make money; however, if the stock prices go in the opposite direction, investors can be in for a long period of misery—their losses can even be more than 100%. In addition, in order to short, investors need to meet a certain amount of capital requirement in their portfolio.
Instead of just short selling a stock and putting up the capital, thereby exposing themselves to greater risk, investors can make money when the stock price is falling by using an option strategy called the “bear put spread.” This option strategy provides investors with a limited-risk, low-capital option.
Consider this: Google Inc. (NASDAQ/GOOG) trades well above $700.00. To simply short 100 shares of this company, investors require a significant amount of capital.
At the very core, a bear put spread requires investors to buy a put option strike price above the current stock price, in anticipation of stock prices falling, and a write/sell put option at a lower cost than the current stock price. One key aspect investors must remember is that these two put options should have the same expiry date.
Suppose ABC, Inc. is trading at $30.00 per share now, but an investor believes that the stock price will decline. So, instead of short selling, he/she decides … Read More
