Top Three Investing Themes |
| Written by Rob Goldman | ||||||||||||||||
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The most successful way to play the current, difficult market is via certain themes. For example, the 3 latest picks in last month’s 30-30 Report, are up an average of 8% versus the nearly 10% decline during the same period. (Subscribe now to ride the wave of these 3 picks and get our next issue to be released on Thursday.) Why? Our theme was finding cheap stocks that are seasonal and typically beat estimates. In addition to following this theme we highlight a stock that may be riding the coattails of the Zika virus fears and recommend small stocks in two other sectors. Worried the bottom could fall out of the market? So are we. In fact, we could drop another 10%. But, see why our confidence is greater that the worst may be over… DID WE JUST HIT BOTTOM?
We may look back at the hit we took on Thursday and say that was the market bottom. After all, stocks rocked the next day, driven largely by a massive increase in oil prices. Of course, we sensed we were getting close to bottom as featured in our lead story in last week’s edition of The Goldman Guide. Now, the market is indicating a big up day after tremendous rises in Japan, Asian emerging markets and Europe. Plus, Facebook (NASDAQ—FB) results this week could prolong this short term boost. Unfortunately, I fear that we can still drop another 10% from last Friday’s close. Still, in the grand scheme of things, stocks seem inexpensive (notice I did not say attractive per se). However, when we hit last week’s new low, it was only on a marginally higher increase in volume. Clearly, there are some market watchers who would feel more comfortable sounding the “all-clear” signal if we had a capitulation event. Or, at the least, a drop of that magnitude on bigger volume. With all of the turmoil around us, there are stocks rising. In fact, our most recent The 30-30 Report picks are up an average of 8% in the past few weeks while stocks are down 8%. While they still appear attractive, there are other plays too. Top Three Short Term Investing Themes
For example, our 30-30 picks have been successful due to the fact that they are cheap on a P/E basis, have some seasonality to them, and are riding key themes. The way to play stocks that are represented by an index (Russell 2000) that is down 25% from its year high is to think short term and to leverage themes. After all, there is no conviction yet in equities so you don’t want to get caught with your pants down. One theme has already been played a bit but is primed to stay with us for a while: The Zika Virus. On page 3 we have a link to a great story on the opportunities here stock-wise. The bottom line is that investors can ride the coattails of stocks like vaccine maker Inovio Pharma (NYSE—INO—$6.27). This controversial company has a lot going for it beyond the early Zika vaccine testing potential and is at least worth a look. Got courage? Small cap and micro cap oil and gas plays (non-fracking exploration and production) could see some more gains if we are right that oil will approach $40 in the next few months. Finally, stick with consumer (retail) and tech stocks that have a history of beating estimates. Since tech stocks typically have headwinds beginning in May/June, this is the best time to buy, with the intent to sell during mid-late Q2. Prefer longer term holdings? Dividend-paying stocks that yield more than 2.5% annually are gaining momentum. Say What?
Bloomberg More on this later. Got legs don’t you think? USA Today Something to sock away for future investing reference. The New York Times What the smart money is doing… Marketwatch http://www.marketwatch.com/story/what-would-bernie-sanders-wall-st-tax-look-like-2016-02-14 With Clinton slumping, good to know… ZeroHedge http://www.zerohedge.com/news/2016-02-14/dont-panic-experts-agree-not-2008 A calming influence? The Stock Market Today AAII Sentiment Survey (figures rounded)
Believe it or not, the survey results for Bulls and Bears are just a tad above the recent highs achieved in January. Perhaps another drop would represent the “throw in the towel” sentiment. Unfortunately, with the way the week is shaping up, these figures are more likely to climb then descend. Meanwhile, how funny is it that the Bulls and Neutrals flip-flopped! I feel a consensus among individuals and pros building and that is a good sign.
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