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
The third season of House of Cards will likely once again see a massive influx of new subscribers flow to Netflix, Inc. (NASDAQ/NFLX). The company is sizzling on the chart and is the “Best of Breed” in the video streaming market at this time. Netflix currently has about 57 million subscribers.
Having said that, my stock analysis shows that the top-heavy valuation will need to be fuelled by better top-line growth, especially from the international markets where Netflix is dominant. The company already offers its streaming service in about 50 countries, but it is aggressively aiming to expand into hundreds of countries.
Netflix Plans for Expansion
Netflix just announced it would be entering into the Cuban market, which I believe is still very raw, given the lack of communications infrastructure there. The view may be that as the country opens up its relationship with the United States, there will be improvements in its communications technology. With about 90 million potential Netflix subscribers in Cuba, the market is significant.
Of course, Netflix is also trying to do something many other U.S. media companies have failed to do so far, and that is to expand into the massive and highly lucrative Chinese media market. The problem is that Netflix will do it alone. Based on the extremely tough and regulated nature of content in China, it will not be an easy chore for the company. Just ask Google Inc. (NASDAQ/GOOG) and Yahoo! Inc. (NASDAQ/YHOO). My stock analysis suggests that any success in the Chinese market would be a bonus that could drive the valuation much higher…. Read More
Video Streaming Competition Comes Down to
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
Tim Cook must be pleased with the results of Apple Inc. (NASDAQ/AAPL). Heck, the company sold an amazing 74.5 million “iPhones” and has become the top seller of smartphones in China, surpassing rival Samsung Electronics Co. Ltd. and China-based upstart Xiaomi Inc. (aka “the Apple of China”). Based on the numbers, China has become a massive growth region for Apple. But is the iPhone’s success enough to keep the stock on top?
Apple Stock Undervalued? Icahn Says So; I Say Maybe
I recently discussed Apple a few weeks ago when the stock was trading at $108.00. It’s now up $10.00 in little more than a week.
Chart courtesy of www.StockCharts.com
I just watched famed investor Carl Icahn on CNBC. He’s a major shareholder in Apple and a strong critic, especially when it comes to what to do with Apple’s massive $178-billion, or $25.00-per-share, cash balance. Icahn is bullish on Apple and believes the stock is vastly undervalued at around 10X its forward earnings when you discount in the free cash.
Now, I do agree with Icahn that Apple is worth more, but there are some issues the company has to deal with before I would agree with the $200.00 price he was throwing around.
In the fiscal first quarter, revenues grew 30% to $74.6 billion and made a staggering $18.0 billion, or $3.06 per diluted share. Of course, selling the number of iPhones it did definitely helps.
Apple’s iPhone Sales Enough?
Apple is clearly being driven by its iPhone, as sales of its “iPad” and “Macs” were soft. Moreover, the newly minted Apple “Watch” is seeing mixed results. (In my … Read More
The 460-point intraday swing in the DOW on Tuesday could be reflective of what to expect this year. While I was sitting at my trading desk, I was thinking how the volatile swings in the stock market would likely scare the average investor.
Recently, my dad called and asked me what I thought about the state of the stock market. My immediate answer was that it really shouldn’t matter that much to him at this juncture in his life. Now, I’m not saying my dad shouldn’t worry, but he should be largely invested in lower-risk income-producing investment vehicles, such as the banks and utilities, along with higher-yielding bonds anyway.
And that leads me to an important point: the key to successful investing is to understand where you are in your investment lifecycle. Those who are older should have security and income in mind, while younger investors should have growth in mind. An older investor thinking about retirement shouldn’t assume the same amount of risk as a younger investor. The opposite is also true: a younger investor shouldn’t be primarily buying bonds and lower-beta, low-return stocks.
The Best Investment Strategy Based on Age and Risk Profile?
What you need to keep in mind is the concept of a sound asset allocation and diversification strategy that makes sense and fits your priorities based on your age. The idea of asset allocation should be a key part of any prudent investment strategy. Without a plan, you are vulnerable to market shocks that may be insurmountable.
When I talk about asset allocation, I’m referring to the asset mix of your portfolio divided into three … Read More
The energy sector was dismal in 2014 and it is looking like we could see more of the same for this year. If you are long on oil, you may want to read this, as oil prices could move lower and there are two strategies you can consider to profit from their drop: put options and futures.
Currently, we have the excessive supply overriding the declining demand as the global economy struggles along. China just announced its gross domestic product (GDP) growth would fall to seven percent this year; however, I think the real figure is likely already below seven percent, as there’s some fudging of the numbers. The eurozone could dwindle into another recession or see flat growth, and Russia is clearly heading for another recession in 2015, as long as President Putin continues to refuse to conform to global demands.
The lackluster demand will continue to pressure oil prices.
On the supply end, there’s the massive flow of shale oil that will ultimately help to make the country independent of OPEC (Organization of the Petroleum Exporting Countries) oil, but will pressure oil prices in the foreseeable future.
OPEC is refusing to cut production, especially its largest member, Saudi Arabia. This is likely in an attempt to try to force the U.S. to cut its shale production and send oil prices higher. We are already beginning to hear about capital expenditure cuts by oil companies in the country.
In addition, non-OPEC oil producers Russia and Iraq have announced their intentions to increase oil exports, which will place further pressure on the price of oil. Of course, these two countries … Read More
While China is struggling with its gross domestic product (GDP) growth metrics, the country’s main stock market—the Shanghai Composite Index (SCI)—is easily outperforming the S&P 500 and NASDAQ.
China may be stalling, but the Chinese economy is still growing at a rate of more than seven percent—far better than the rest of the G8 countries. Now, of course, that’s if you believe the GDP reading that is put forth by the Chinese government; as with most data coming from China, it is up for debate whether it is real or fictitious.
But going forward on the premise that the GDP reading is accurate, you can understand that the potential for investment growth is significant.
The SCI is up 37% this year, easily outperforming the U.S. domestic stock markets. And now, with access to Chinese stocks traded on the two Chinese exchanges (the Shanghai and Shenzen) made possible from a hub in Hong Kong, the SCI has been edging higher.
Add in the fact that the country’s central bank, the People’s Bank of China, is continuing to pump easy money into the economic system, and you have the potential for more gains.
But to make the real money, you need to gain access to the “A” shares that trade in China, and not simply the American depository receipts (ADRs) that are listed on U.S. exchanges.
Investing in China’s “A” Shares
The iShares China Large-Cap (NYSEArca/FXI) comprises the 25 largest companies in China but its performance has been substandard, moving up a mere three percent this year.
If you want access to the “A” shares listed on China’s exchanges, you can either … Read More
One of the most common traits I find in successful companies is that they often have a multinational presence. That’s not to say that domestic-only companies are not successful, but for real growth, many of the top S&P 500 companies are global, based on my stock analysis.
Whether it’s in the industrial, technology, financial, aerospace, or healthcare sectors, the commonality is the global exposure that many of the world’s top companies all exhibit.
In fact, the failure to capitalize on foreign markets can really limit a company’s growth, according to my stock analysis.
There are only two avenues to drive revenues: A company can increase its price to the consumer, but this doesn’t always come across as being prudent. Or a second and more viable way is to expand outside to foreign markets, as my stock analysis suggests.
Companies can expand nationwide or internationally like many of the world’s multinational companies. Just take a look around and see how many American companies are found outside of our borders and spread across Europe, Asia, and Latin America. China is a perfect example of where companies go to seek added growth, as my stock analysis indicates.
Technology companies like Microsoft Corporation (NASDAQ/MSFT), Google Inc. (NASDAQ/GOOG), Facebook, Inc. (NASDAQ/FB), and Apple Inc. (NASDAQ/AAPL), to name just a few, all have a major global presence.
An example of moving to the global sphere too late is Target Corporation (NYSE/TGT), with its first foreign foray into Canada. It has been a bust so far, given that rival Wal-Mart Stores Inc. (NYSE/WMT) has been in Canada since 1994, being the market leader in the country and … Read More
You can’t deny it: there are outright signs of stress on the key stock indices. We see investors are worried, and they just don’t like risk. We see huge selling in the growth stocks, with names like Amazon.com, Inc. (NASDAQ/AMZN) and Twitter, Inc. (NYSE/TWTR); they are witnessing a huge sell-off and are now in bear market territory. The biotechnology sector is getting slammed—investors are hitting the bid and running for the exit.
With all this happening, one question comes to mind: what happens next? Growth stocks can act as a leading indicator of what’s next for the markets. Are key stock indices setting up for a huge market sell-off ahead?
Sadly, as this happens, we are hearing a significant increase in the noise. The bulls say this pullback should be used to get into the sold-off companies again. The bears argue that key stock indices are going to shed more gains. Beware; your portfolio might get hurt.
When it comes to investing for the long run, it is critical that investors try to minimize the noise and look at the long term.
With this said, over the past few years, the key stock indices have increased significantly. 2013 was another stellar year. Key stock indices like the S&P 500 increased more than 30%. Companies that are getting sold off—for example, Amazon.com—increased roughly 50%. The NASDAQ biotechnology sector that’s plunging lower now had increased by more than 85% in 2013.
Going forward, it doesn’t look like the year 2014 will be anything like 2013. I expect the key stock indices to move sideways—trading in a range. These ranges may break to … Read More
One of the investment strategies discussed in the mainstream these days is to add exchange-traded funds (ETFs) to your portfolio. It is said that when you do just that, your portfolio has lower risks and you are well diversified.
For investors who are not as advanced, when it comes to investing; this investment strategy makes sense. For those who are advanced, they shouldn’t fall for this investment strategy; they may be better off going the other way—buying individual stocks instead.
Let me explain…
Between March of 2009—when the bull market run started—until February of this year, if you bought the most famous ETF for your portfolio—that is SPDR S&P 500 (NYSEArca/SPY), which tracks the S&P 500—your returns would be more than 185%. Plus, there would be dividends. Including dividends, your returns would be just over 200%.
But, saying the very least, you could have done better.
If instead of buying the SPY at the time when markets were presenting investors with an opportunity of a lifetime you bought a company from the S&P 500 like General Electric Company (NYSE/GE), your profits would be upwards of 300%. This is including the dividends you would have received.
With all this said, let me make one thing very clear; I am not opposed to adding ETFs to a portfolio. Rather, I believe investors can get better portfolio returns if they are confident enough in making their investment decisions and buying individual companies instead of sticking to indexed investing.
In 2009, stock markets were very uncertain. With companies like GE, there were fears that it may go bankrupt. Buying at that time wouldn’t have … Read More
By Sasha Cekerevac for Daily Gains Letter | Feb 28, 2014
When you are looking at your portfolio and considering making adjustments, it’s important to take into account not only the current environment, but what potential changes could occur in the future that can alter your investment strategy.
Here’s a perfect example of what I’m talking about:
We all know that Japan has been trying to lower its currency in an attempt to stimulate its economy.
What’s a side effect of a weaker economy? Higher import prices, and since Japan relies almost entirely on imported energy, costs are rising significantly, which is hurting the average Japanese citizen since wages are not increasing.
Just recently, Japan announced that it is now drafting a plan that will reopen nuclear power plants, allowing the country to rely on nuclear power for their core power production once again. (Source: Iwata, M., “Japan sees key role for nuclear power,” Wall Street Journal, February 25, 2014.)
We all know about the horrible disaster that occurred at the Fukushima Daiichi plant, but as much as Japan doesn’t want nuclear power, the country is finding that it has no alternative.
This is a significantly bullish scenario for uranium stocks. Obviously, following the disaster, corporate earnings for uranium stocks fell sharply along with the price of the commodity. The natural investment strategy was to avoid this sector until there was some clarity about the potential for a renewed interest in uranium, which should help drive corporate earnings.
It appears we are certainly turning the corner, as 17 nuclear power plants are currently being screened to be restarted by the Nuclear Regulation Authority. In total, Japan has 48 nuclear reactors, which … Read More
By Sasha Cekerevac for Daily Gains Letter | Feb 26, 2014
What year is this—1999?
Some of you might have been active investors in the bull market during the late 90s, as I was, witnessing the S&P 500 soar during that decade. In fact, the bull market was so strong back then that it created a false sense of confidence, as many people quit their regular jobs to become traders. As we all know, this didn’t last forever and the S&P 500 bull market popped and sold off sharply.
Just a couple of days ago, I read an interesting article about how small investors are back, seduced by the bull market, which has resulted in a very strong performance for the S&P 500 over the past few years.
There is nothing wrong with enjoying this bull market move, but when everyone thinks they are an exceptional trader over a short period of time, this worries me.
In the article, the active investor is an equipment salesman who is now “considering quitting his job to trade full time.” (Source: Light, J. and Steinberg, J., “Small Investors Jump Back into the Trading Game,” Wall Street Journal, February 21, 2014.)
This is what happens in a bull market; the consistent strength lulls people into believing they are somehow able to predict the future, when just a couple of years ago, they had no clue how to make money in the stock market.
That is the real test for investors—will your strategy work through a bear market as well as through a bull market? Just because you keep buying every dip in the S&P 500 and have, so far, been rewarded, this is not an … Read More
For an economy that relies on consumer spending to fuel the vast majority of its economic growth, ongoing weak retail sector sales and increased jobless claims cannot be part of the equation. But they are. And have been.
In January, U.S. retail sector sales fell by 0.4%—the most since June 2012. Economists had predicted that January’s retail sector sales would be unchanged in January after falling by a revised 0.1% in December. (Source: “Advance Monthly Sales for Retail and Food Services January 2014,” U.S. Census Bureau, web site, February 13, 2014.)
January retail sector sales, excluding automobiles, gasoline stations, and restaurants, showed the worst year-over-year growth since 2009. And with the harsh winter weather, January’s sales reflect the sometimes unpredictable, cyclical nature of our spending, from discretionary (e.g., cars) to non-discretionary (e.g., heating).
At the same time, more Americans filed applications for unemployment benefits for the week ended February 8. Jobless claims climbed by 8,000 to 339,000; the four-week moving average for new claims increased to 336,750 from 333,250. Many economists continue to blame the cold weather for both weak retail sector sales and increased jobless claims. (Source: “Unemployment Insurance Weekly Claims Report,” United States Department of Labor web site, February 13, 2014.)
Fortunately, there is a silver lining to all of this. They suggest we’ll start to see an acceleration in hiring and retail sector sales in the spring and summer seasons—meaning they have written off the entire first quarter of the year, a quarter most economists initially predicted would be bullish. Myself and the financial editors here at Daily Gains Letter, on the other hand, have been warning … Read More
While most astute investors would point to a weak U.S. economy as the reason for the recent lackluster U.S. employment data, economists, in their infinite wisdom, point to Mother Nature. She seems to shoulder a lot of the economic blame in this country.
In January, the U.S. economy added just 113,000 new jobs, far fewer than the expected 180,000 jobs. Freezing winter weather is being blamed for the weak U.S. unemployment data. This is the second straight month of disappointing jobs data from the U.S. Department of Labor.
Last month, the U.S. economy added just 74,000 jobs—far, far below the forecasted 200,000 jobs. The back-to-back weak employment numbers continue to fuel fears that the so-called U.S. economic recovery might be stalling…if one could ever really say the U.S. economy took off.
The new unemployment data shows that 10.2 million Americans in the U.S. economy have work. While the number of people who have been out of work for more than 27 weeks declined by more than 200,000, the number was probably impacted by the 1.7 million Americans who lost their extended federal unemployment benefits at the end of December.
Last Thursday, attempts to revive a program aimed at extending unemployment benefits by three months for the long-term unemployed failed, being supported by just 59 of the 60 senators needed to pass the motion. At the end of the day, in this U.S. economy, 3.6 million Americans, or 35.8% of the unemployed, are stuck in long-term unemployment limbo.
And they might be stuck there for a long time. A recent experiment conducted by a visiting scholar at the Boston Fed found … Read More
Another day and another 300-point decline in the Dow Jones Industrial Average—that seems to be the norm right now. But despite my assurances that things will inevitably get better, I continue to see extreme nervousness out there.
Now it’s probably time for more hand-holding as we move along during this mini crisis in the markets.
Look, the world isn’t going to blow apart. We are simply hoping through a stock market correction that should have occurred in 2013 but didn’t, largely due to the Federal Reserve’s easy money policy. That’s coming to an end as the tapering continues, but so what?
Based on the morning trading activity on Tuesday, the stock market, while edging higher, wasn’t exactly showing that it was firmly behind the buying; hence, it will likely be prone to more downside moves. My thinking is that we could receive another five-percent hit and then slowly rally.
The concern is that we could see more selling capitulation emerging on higher volume, so investors should be very careful.
The failure of the Dow to hold at its 200-day moving average (MA) is concerning.
Small-cap stocks were down nearly 10% at the close of Monday, nearing what would be an official stock market correction. Just watch how the Russell 2000 behaves going forward, focusing on whether it can hold and rally from here.
My assessment is that the stock market could likely move lower prior to staging a rally.
Of course, the release of a softer-than-expected ISM Index hurt and suggested the economy may not be as strong as the gross domestic product (GDP) growth would indicate.
The thing is … Read More
By Sasha Cekerevac for Daily Gains Letter | Feb 5, 2014
One of the most hotly debated topics these days is the role of activist investors. Some people have the impression that an activist investor is not a positive factor when it comes to long-term investing. I disagree, as many times, the investment strategy recommended by these activist investors ends up benefiting all shareholders.
Probably the most well-known, and certainly the wealthiest, activist investor is Carl Icahn. One of the things I like most about Icahn’s investment strategy is that he is willing to buy when others are selling and be vocal about his intentions.
A perfect example of his long-term investing ideology was when he stepped in to buy shares of Netflix, Inc. (NASDAQ/NFLX). If you remember a few years ago, Netflix shares were trading around $60.00 and many analysts were recommending an investment strategy to stay away from Netflix. Icahn saw an opportunity to accumulate a solid company for long-term investing purposes and has held on, making a return well in excess of 500%.
I would never recommend someone simply follow a successful activist investor like Icahn; rather, I would investigate any investment strategy he advocates to see if it matches my own risk profile. For long-term investing purposes, if I was a shareholder and he became active, I would certainly be happy.
Chart courtesy of www.StockCharts.com
His recent investment strategy in Apple Inc. (NASDAQ/AAPL) makes perfect sense. The recent sell-off, I believe, is an excellent opportunity for investors to take a look at Apple as a possible long-term investing option, since the current valuation is only 10.9X its forward price-to-earnings (P/E). That is an extremely attractive valuation for … Read More
By Sasha Cekerevac for Daily Gains Letter | Jan 31, 2014
One of the more common themes that I keep reading about these days is the strength of U.S. economic growth. It’s important to get at least some understanding of the potential for economic growth, as this will impact your investment strategy.
Recent data is definitely making me ask the question: just how strong is the level of economic growth in America?
We all know that this holiday season was much weaker than expected for retail companies. Considering that consumer spending fuels the majority of economic growth in America, this is certainly not a positive environment for that sector—but that shouldn’t be a real surprise to my readers, as I have recommended an investment strategy that has avoided retail stocks for months.
If economic growth is weak in retailing, are there any bright spots for larger goods?
According to the U.S. Department of Commerce, the latest advance report on durable goods was quite disappointing. New orders for durable goods during the month of December dropped 4.3%, core durable goods orders during December dropped 1.6%, and excluding defense, new orders were down 3.7%. (Source: U.S. Department of Commerce, January 28, 2014.)
Another worrisome data point in the report showed that the inventory level of manufactured goods in December was up 0.8%, the highest total amount since this data series was published and also the eighth monthly increase over the last nine months.
How should you formulate an investment strategy with this information in mind?
Economic growth depends on a continued increase in consumption and production. We saw consumers pull back over the holiday season, which is clearly not a positive sign for … Read More
By Sasha Cekerevac for Daily Gains Letter | Jan 22, 2014
One of the hardest lessons to learn is to buy assets when others are selling them. As an investment strategy, if there is value in something, at some point, the market will rebound, provided that there are fundamental reasons for this to occur.
Take the case of our housing market. From the depths of the Great Recession until now, the housing market has made a huge move up. Yes, it was pushed by the Federal Reserve, but there were fundamental reasons why the housing market showed value as an investment strategy.
One company that I’ve liked for many years is The Blackstone Group L.P. (NYSE/BX). This firm is filled with smart people who are willing to buy an asset when others are negative, looking at the investment strategy from a long-term point of view.
Blackstone has become the largest single-family housing rental company in the U.S. When the housing market collapsed, they saw an investment opportunity, as many homes were selling below the cost of building them. Plus, the yield they were able to obtain in the housing market was far higher than many other investments at that time.
The company bought more than 40,000 homes in the U.S., spending $7.5 billion. Obviously, Blackstone made a huge return in the U.S. housing market. But now Blackstone’s turning its sights overseas.
The U.S. wasn’t the only nation to be hit with a housing market meltdown. Spain’s housing market has seen a 40% drop in prices, and Blackstone now believes this, too, is a great long-term investment opportunity.
Blackstone recently paid $173 million for 18 apartment buildings in Madrid, and the company … Read More
By Sasha Cekerevac for Daily Gains Letter | Jan 10, 2014
As the stock market continues moving higher, it becomes that much more difficult to find value stocks. They’re still there, but one needs to dig a bit deeper to find attractive valuations as part of one’s investment strategy.
One company that I’ve been researching lately is Sony Corporation (NYSE/SNE). Everyone is aware, I’m sure, of Sony, as it’s been around for decades. While the stock had a relatively strong performance in 2013, I believe there is potential for a very good year in 2014, in terms of corporate earnings growth.
When people think of Sony, I’m sure it might surprise them that the company is only worth approximately $18.0 billion. These days, when social media companies that don’t generate any income or, in cases such as SnapChat, don’t have any revenue are worth billions of dollars, the valuation of Sony certainly appears interesting.
But when you’re looking at an investment strategy for a company, there needs to be a catalyst for the stock to move higher. I believe that 2014 will present several important drivers that will propel the stock upwards.
My first point is the weakening of the Japanese yen. I believe that we will continue to see the Japanese yen weaken, which will have a positive impact on Sony’s corporate earnings. By incorporating this macro viewpoint into one’s investment strategy, it will help provide a diversified approach to generating returns.
The second point is the introduction of new gaming consoles. At the recent Consumer Electronics Show in Las Vegas, Sony announced that it had sold 4.2 million “PlayStation 4” units as of December 31, 2013. With sales beginning … Read More
By Sasha Cekerevac for Daily Gains Letter | Dec 20, 2013
What does it take to develop a successful, long-term investment strategy?
This is the correct question to ask, rather than asking simply which stock(s) to buy. To be successful over the long term, you need to have a comprehensive investment strategy that takes into account your goals and risk parameters.
Having said all of that, at the end of the day, I’m looking for a company that has both an attractive valuation and the ability to increase corporate earnings at a rate above market expectations.
One way to develop an investment strategy is to look at the factors driving corporate earnings for a specific industry and individual company.
A great example is the automotive sector and Honda Motor Co., Ltd. (NYSE/HMC). Based in Japan, Honda actually has several different segments that they sell into, with automotives being their most commonly known products sold worldwide.
Chart courtesy of www.StockCharts.com
Why do I think corporate earnings will continue rising at Honda, and what factors am I considering when looking at this stock as part of an investment strategy?
Looking at the automotive industry here in America, sales are obviously soaring now compared to what we’ve seen over the past few years. Is there any real sign that this will change anytime soon? I don’t believe so, and I think cheap financing will continue for some time.
Globally, car sales will continue to increase as many nations around the world are keeping interest rates low, creating cheap financing.
Another reason I believe Honda will continue to rise is the policies stemming from the Bank of Japan and the government of Japan. For those … Read More
When it comes to building a balanced portfolio, investors like to find stocks that provide both value and growth. If you’re a value investor, you’re always on the lookout for companies that are cheap relative to their earnings, assets, or price-to-book value; in other words, they look for what’s undervalued.
A growth investor, on the other hand, likes to look at publicly traded companies that are in a position to rapidly increase their revenues and profits; they want stocks with excellent long-term growth potential. This could include those stocks that have provided revenue and earnings guidance that is expected to outperform the market or industry.
While sticking with one strategy over the other can work, it can also lead to lurching gains when your investment strategy hits economic headwinds. However, combining both strategies can produce more consistent returns.
But if profitable investing really was that easy, everyone would be following this investment strategy, which means no one would be making money.
The fact of the matter is that in this economic environment, it’s pretty tough to find unloved, overlooked value and growth stocks. That’s because virtually everything is going up.
The S&P 500 is up 26% year-to-date and 15% since its pre-Great Recession high. Not to be outdone, the Dow Jones Industrial Average is up more than 21% since the beginning of the year and up roughly 13% from its pre-recession high. The NASDAQ is hands down the top performer so far this year, up 30% since January 2 and more than 40% since peaking in 2007.
In a bull market where it seems like everything is going up, it’s … Read More
Major economic hubs in the global economy are in outright trouble, and each passing day there’s more economic data suggesting the slowdown is holding its own. Investors need to be wary about what’s happening, because it can affect their portfolio significantly.
The eurozone crisis, which sent ripple effects into the global economy, is rising again. In the early days of the eurozone crisis, we heard how the economies of such nations like Greece, Spain, and Portugal were suffering. Now, the bigger nations in the euro region are showing signs of stress. Consider France, the second-biggest economy in the eurozone, for example. This major economic hub in the global economy witnessed contraction in the third quarter. On top of this, France’s unemployment rate continues to increase.
Germany, the biggest economy in the eurozone and the fourth-biggest economic hub in the global economy, slowed in the third quarter. The gross domestic product (GDP) of the country increased just 0.3% in the third quarter. In the second quarter, Germany’s GDP increased by 0.7%. (Source: “Gross domestic product up 0.3% in 3rd quarter of 2013,” Destatis, November 14, 2013.)
Similarly, Japan, the third-biggest nation in the global economy, continues to struggle, despite the extraordinary measures the central bank and Japanese government have taken to boost the economy. In the third quarter, the growth rate of the Japanese economy slowed down. The GDP grew 0.5% from the previous quarter. The annual GDP growth rate of the Japanese economy was 1.9% in the third quarter. (Source: “Gross Domestic Product: Third Quarter 2013,” Cabinet Office, Government of Japan web site, November 14, 2013.)
Adding more to the … Read More
Your 401(k) is supposed to be a retirement account with a long investing horizon—not a day trading platform. Unfortunately, there are a growing number of investors doing just that, throwing not just caution to the wind, but also their long-term financial stability.
Way, way back in 1978, Congress enacted the Revenue Act to help encourage Americans to save more for retirement. The Act allows Americans to save for retirement while, at the same time, lowering their state and federal taxes. The term “401(k)” refers to the section number and paragraph in the Internal Revenue Code: section 401, paragraph (k).
The most widely used investment vehicle, your 401(k) is a long-term diversified investment strategy designed to (ideally) minimize risk while helping you realize your retirement goals. With a 401(k), you make money on long-term investing in a diversified portfolio that takes advantage of capital gains growth and compound interest.
As an added incentive, many employers will match your contribution. In 2013, employees can tuck $17,500 away in their account, and those over 50 years old can put away an additional $5,500.
While plunking down a solid portion of every paycheck into your 401(k) may take discipline, you do so because you want to have some sort of safety net when you retire, which is a long-term strategy. Too many investors, however, are tired of the returns they’re seeing with their 401(k)s, especially in light of the major strides the S&P 500 and Dow Jones Industrial Average are making.
In an effort to chase higher returns on their 401(k)s, many investors are now tapping into it for day trading purposes. This is … Read More
For many people, making a profit isn’t the only goal when it comes to investing. Often, ethical concerns can be as important, or even more important, than earnings and dividends. Many investors think we need to be better stewards and be socially responsible for what we invest in.
Socially responsible investing (SRI) is an investment strategy that seeks a financial return from companies deemed socially responsible in regards to both what they produce and how they conduct their business.
By investing in industries like renewable energy, clean water, healthy food, and sustainable living, or in companies that encourage equal opportunity and produce safe and useful products, it is believed investors can make both money and a positive difference in the world around them.
Over the years, ethical investing has evolved from avoiding companies associated with guns, liquor, tobacco, and gambling to being more socially responsible and investing in companies that promote environmental, health, and even political concerns.
Maybe it’s karma, but many of those who have embraced socially responsible investing have seen their portfolios grow substantially over the last four years.
The iShares MSCI USA ESG Select Index (NYSEArca/KLD) is an exchange-traded fund (ETF) that tracks U.S. large- and mid-cap stocks screened for positive environmental, social, governance, and ethical traits.
The fund has total net assets of $207.92 million and an expense ratio of 0.5%. Some of the fund’s 117 holdings include Eaton Corporation plc (NYSE/ETN), NextEra Energy, Inc. (NYSE/NEE), and Marsh & McLennan Companies, Inc. (NYSE/MMC).
The fund is up 11.6% since the beginning of the year, 22.7% over the last 12 months, and 145% since March 2009.
The … Read More
A friend of mine, let’s call him Mr. Speculator, recently asked me if the buy-and-hold investment strategy even makes sense anymore. On one day, the stock markets are up on bad economic news, and then on the next, they are sliding lower on good data. “I don’t think investors should bother with fundamentals anymore; they don’t matter,” said Mr. Speculator. “They should just trade the directions markets are going in and hopefully they will do alright in the end.”
First of all, Mr. Speculator’s argument does have some merit. The stock markets here in the U.S. economy, according to many, have gone up too much, on very little economic growth. Since the sell-off from 2008 to 2009, key stock indices like the S&P 500 have roughly gained more than 120%.
Looking at the performance of the economy, it’s mediocre, to say the least. The jobs market remains under pressure; the Bureau of Labor Statistics reported that the unemployment rate in the U.S. economy stood at 7.6% in May. That’s certainly lower than its peak in 2009, but nowhere close to the pre-financial-crisis level, when it was around 4.7% in 2007. (Source: “(Seas) Unemployment Rate,” Bureau of Labor Statistics web site, last accessed June 19, 2013.)
Other economic indicators are showing very similar performances, if not worse. For example, the housing market is still depressed, companies are piling up inventories, the number of individuals in the U.S. economy on food stamps has been continuously increasing, the government keeps on spending more than it earns, and cities across the country are struggling with budget deficits.
That said, Mr. Speculator is sadly forgetting … Read More
Generally speaking, by keeping focus on the long term, investors can grow their portfolio with peace of mind. When doing this, they are not concerned about what happens to their portfolio on a daily basis; rather, they are looking for performance at the end of the year, when it’s less stressful.
That said, while not denying that focusing on the long term is definitely a good idea, there are times when investors may be able to speculate with high probability trades and give their portfolios a little boost. As I have said before, an increase of just one percent over time can amass into a significant sum.
Consider the following two investment strategies through which investors may be able to grow their portfolio:
1. Sell in May and Go Away
If you have seen or heard the financial news recently, then you have most likely heard of this strategy before. The implication behind this investment strategy is that investors should sell stocks in the month of May and not come back to the markets until October. This is because in this period, historically speaking, the key stock indices don’t perform well, providing dismal returns.
According to the Stock Trader’s Almanac, since the 1950s, in the six months between May and October, the Dow Jones Industrial Average has gained only 0.3%. Compared to the other six months, November through April, the gains on the Dow have averaged 7.5%. (Source: Task, A., “‘Sell in May and Go Away’ and Other Sayings Best Ignored,” The Daily Ticker, May 31, 2013.)
2. Turn of the Month
This investment strategy is very simple. Investors apply … Read More
Retirement confidence seems to follow the trends of the global economy. At least, that’s according to one recent survey that looked at 12,000 workers and retirees in 12 European, North American, and Asian countries, including France, Germany, Hungary, Japan, the Netherlands, Poland, Spain, Sweden, China, the United Kingdom, the United States, and Canada—making this one of the largest studies of its kind.
The study found that 65% of the participants believe future generations will be worse off in retirement than they are today; more than half of the American workers (55%) feel that way, while 80% of the workers from France and Hungary expect future generations to be worse off. The Chinese are the least pessimistic, with roughly one in five participants feeling the same way. Only nine percent of respondents believe future generations will be better off in retirement than those in retirement today.
Thanks to government cutbacks, 63% of employees think their government retirement benefits will be less reliable or helpful; American workers come in near the top at 65%. America’s retirement pessimism continues, with just 12% saying their personal retirement planning is “very well-developed.”
A further 37% of Americans don’t know if they can achieve their desired retirement income. Only 12% are very optimistic that they will have enough money to live on, and only another 12% are very optimistic that they will be able to choose when they retire.
Not surprisingly, you have to have a handle on what it takes to retire to actually be able to plan for a comfortable retirement. The current retirement-related risks have increased on the backs of “financial illiteracy”—with only … Read More
When it comes to money, more is better. But when it comes to your retirement portfolio, less might be more. With over 8,000 mutual funds and exchange-traded funds (ETFs); roughly 3,000 stocks traded on the NASDAQ, 2,800 on the NYSE, and 3,800 on the AMEX to choose from; and 401(k)s, individual retirement accounts (IRAs), and countless asset management strategies, it’s easy to see how an investment portfolio can get complicated.
And cluttering complicated investment portfolios with too many assets and vehicles can make them difficult to understand. A failure to streamline a complicated portfolio means there could be overlap, which means you could be funneling money into one asset class when it could better serve you elsewhere.
A streamlined retirement portfolio does not mean it gets gutted to the lowest common denominator; it means you know what you’re invested in, ensuring there are few or no redundancies. It also means rebalancing your portfolio’s asset allocation, which will depend on your age, desired outcome, and risk level. Here are three stress-free strategies for simplifying your portfolio while increasing its possibility for success.
Consolidate: While the U.S. Bureau of Labor Statistics doesn’t track lifetime careers, it’s fair to say most Americans have held more than a few jobs before retiring. It’s quite possible, then, that you have more than a few 401(k) accounts. Simplify things by collating all of the old plans into a current workplace plan. If that isn’t an option, roll them into a single rollover IRA.
To make life even less stressful, you could also consolidate your bank accounts, mutual funds, and bonds. Having everything in one centralized account … Read More
It’s not uncommon for a company to get in trouble and suffer for many quarters, or even years, before there are some improvements. As a result, when a company’s conditions deteriorate, the stock prices follow in the same direction—they decline.
There are many examples of companies that got into a downward spiral and their stock prices plummeted over time—consider companies like Blackberry (NASDAQ/BBRY), formerly Research in Motion Limited, losing its market share to competitors, and Bank of America Corporation (NYSE/BAC) being heavily involved in mortgages during the housing slump.
One way investors can take advantage of this situation is by shorting the stock—betting that the stock will continue to go down. Unfortunately, to do so, they will have to meet their broker’s initial margin requirement and so on and so forth.
Instead of shorting a stock, investors can make use of an option strategy called the “naked call.” By employing this strategy, investors can also generate income for their portfolio.
Essentially, a naked call is a bearish option strategy in which an investor sells/writes a call option without owning the underlying security. As a result, the investor receives the premium selling price of the option and promises to provide stock if the price reaches a certain strike price. Keep in mind, this option strategy should not be confused with a covered call—they both have very different characteristics, risks, and rewards.
How does a naked call work?
Suppose that stock of ABC Inc. is trading at $20.00, but the investor believes it will continue to decline. Instead of shorting the stock, he writes/sells call options expiring in May for $2.50 per … Read More
Even though the S&P 500 and the Dow Jones Industrial Average are both taking a breather coming off recent record highs, it’s fair to say they remain bullish. Investors who have been sitting on the sidelines might be wondering if the recent dip has created a good entry point, or if the slide will continue.
The fact of the matter is, it doesn’t matter if you’re a short-term or long-term investor, you need a well-defined entry point and exit point. For most, that means trying to time the market, which is virtually impossible.
The hunt to find the best strategy to predict price movements in the stock market is as old as investing itself—and the perfect equation continues to elude us. But that hasn’t stopped investors from inventing their own strategies, whether that means taking a more traditional approach with fundamental and technical analysis, or using more unconventional tactics, like checking your astrological sign.
What, apparently, has been the single best indicator for continued growth? For momentum investors, it’s all about finding stocks that are approaching their 52-week highs. The theory is not without some merit.
In their 2004 paper, “The 52-Week High and Momentum Investing,” Thomas J. George and Chuan-Yang Hwang observe that stock prices do not follow random paths and that returns are predictable. (Source: George, Thomas J. and Hwang, Chuan-Yang, “The 52 Week High and Momentum Investing,” The Journal of Finance October 2004; 59(5): 2145–2178.)
The best way to make gains on the stock market, they found, is to simply consider those equities trading near their 52-week highs, because they usually perform better than other stocks. That … Read More
The Dow Jones Industrial Average and the S&P 500 continue to soar into uncharted territory. With strong gains over the last four-plus years, you’d think there must be a lot of really wealthy investors out there who are celebrating.
There aren’t many rags-to-riches stories coming out of this bull market. There are a lot of rich-to-richer stories, though.
Regardless of which way the markets are headed, people are, for the most part, bad at investing. Between 1990 and 2010, the average U.S. equity investor earned just 3.8% annually, less than half the 9.1% return from the S&P 500. The average fixed-income (bonds) investor pocketed just one percent annually over the same 20-year time frame, as opposed to the 6.9% annual return reported by Barclays U.S. Aggregate Bond Index. (Source: “Investors Can Manage Psyche to Capture Alpha: Dalbar Study of Investor Returns Offers Way to Improve Investor’s Alpha,” Dalbar, Inc. web site, April 1, 2011, last accessed April 11, 2013.)
The average stock fund investor barely beat inflation, while the average fixed-income investor lost money after factoring in inflation. Why are we so bad at investing? Technically, it’s not our fault. We’re hardwired not to lose, but to cut and run.
In days of yore, we survived with our fight-or-flight instinct by running when it made sense to run. The vast majority of those who stuck around to fight the good (no-chance-of-winning) fight didn’t make it. Those who did, though, had bragging rights.
Fast-forward to today, and it’s hard to fight our instincts when it comes to investing. We overestimate our investing acumen when the markets are doing well, and we … Read More
What goes up will come down. But the action is the action, and if you own the stock market, you should be making good money these days.
The price action in the stock market and most blue chips has been very strong, obviously. But trading volume hasn’t spiked with prices; it’s been consistently flat during the recent run-up. There is tremendous pressure now on first-quarter earnings season to deliver the goods. If it doesn’t, this will be the catalyst for a stock market correction.
The recent breakout in the stock market is reminiscent of the action at the beginning of 2012 when stocks crossed their 200-day moving average on the upside. The market advanced strongly for the first three months of 2012, then retreated on first-quarter earnings news. This year, a similar scenario seems likely, as the stock market is absolutely due for a break. The stock chart for the Wilshire 5000 total market index is featured below:
Chart courtesy of www.StockCharts.com
While a great number of companies are expected to report flat comparable earnings in the first quarter, many of the current stock market leaders have seen strong increases in estimates over the last 30 days. Countless Dow stocks are seeing a significant increase from Wall Street in their earnings estimates, for this year and next. Some include United Technologies Corporation (NYSE/UTX), The Home Depot, Inc. (NYSE/HD), The Walt Disney Company (NYSE/DIS), Pfizer Inc. (NYSE/PFE), General Electric Company (NYSE/GE), and Wal-Mart Stores, Inc. (NYSE/WMT).
Increased earnings estimates are a bullish indicator, but it is just one of many. The stock market is really charged up on slightly better economic … Read More