|Written by Rob Goldman
The Goldman Guide
INSIDE OUR 10 MIN PODCAST:
Don’t Sell in May and Go Away
My apologies for no Guide last week and only a text version this week. Was sick and lost my voice---which some people would say is a good thing...
Anyway, today is May 1st, the market is wacky, and the economy is in question. Is a recession around the corner? If ever there would seem to be a great deal of validity to the old axiom: Sell in May and Go Away. This may come back to bite me hard, but I say, no, not really.
Let me explain. There are some situations in which I would consider selling. These include year-to-date losing positions, and those stocks that carry high valuations. The losers will likely remain losers and the high valuation situations may carry undesired risk.
Much like we mentioned a few weeks ago, now is the time to buy stocks that would be characterized as Growth at a Reasonable Price. That feature is broad but it includes stocks with forward P/Es lower than the NASDAQ 100, which is 26.1x. It can also include stocks materially above 5x forward revenue.
The caveat to these comments relates to the associated PEG Ratios, or Price/Earnings/Growth metrics. As long as the forward P/E is below the forward P/E growth rate, or below a 1.0-1.25x PEG. In a similar fashion, unless forward, annual top-line growth is materially above 25%, the underlying stock is a potential sale candidate as well.
Judging by the odd lot trading, investors are not committing new funds to the market and that could limit total performance. It is probably a good approach---until late in the year, when buying could become quite attractive.
The Market Today
AAII Sentiment Survey (figures rounded)
The bulls are at a near record low and the figures indicate absolute equivalent uncertainty regarding the future. A survey question last week regarding performance had bulls at 30.4% and bears at 30.4%, with the rest Neutral.
Volume, whether inflows or outflows, has been in decline, just like trading in individual stocks of varying sizes. The biggest inflow remains SPY---nearly every week. It is widely regarded as a safe haven. The second biggest inflow was the Russell 2000 Index (IWM)—despite the recent death cross. Despite lower volume, and neutral to poor technicals, small caps offer decent valuations and can weather the coming storm better than most, in our view.
5 Investing Considerations...
...Financials should still be avoided as we have been saying for weeks. The latest FDIC potential bailout (First Republic) is not the last.
...But, if you like the sector, fintech, even in ETF form, looks like a good play.
...SEC comments on crypto are not good. Adoption, implementation in the US lags behind the rest of the world, so don’t get caught up in SEC Chairman Gensler’s comments as if they mirror hi peers abroad.
...High growth, reasonable valuation small caps appear to be the way to play stocks. Be wary, perform due diligence, but invest in The World According to GARP. (Ok, bad movie reference.)
...Even small negatives are pronounced in the eyes of investors. We probably need another extended drop to shake out the weak hands, prior to a return to gains later this year.
Thoughts on our ideas? Shoot me an email: [email protected].
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