New Year’s Resolutions
Announcing the Cabot Investors Conference
10 Stocks to Hold Forever — Part Three
New Year’s Resolutions
Every year of the past decade, I’ve made three New Year’s Resolutions. Most commonly, they involve my health and this business. And every year, I’ve kept track of whether I’ve successfully kept these resolutions (achieved these goals) or not.
The tally: I’ve occasionally achieved all three in a year, and I’ve never failed to achieve at least one of the three. All told, over the decade, my record is 18 out of 30 goals, for a success rate of 60%.
That’s not bad, and it’s also not a bad success rate for an investor, provided the investor works to keep his gains larger than his losses.
But a lot of investors don’t have such discipline. A lot of inventors fly by the seat of their pants!
For example, last week, as Congress was engaged in a high-stakes game of chicken (using our money), I received the following note from a reader:
“It appears that Congress is totally incapable of working for the electorate. My portfolio is quickly vanishing. I realize that when we go over the fiscal cliff, it will eventually come back, but it may take years. I’m thinking of selling out totally and sitting in cash before I lose all profits and reduce my net worth. What do you think?”
“Thanks for writing.
“First, recognize the fact that the market, reflecting the sum knowledge and perceptions of all investors, is smarter than any one of us. It is never wrong, and your goal is to learn its ways and help it work for you.
“Right now, the market is acting fine. It’s in an uptrend.
“And the market knows all about the fiscal cliff, as we all do. It’s thought about the expected results, and it’s STILL acting fine!
“Thus to succeed, you should stop worrying about stuff like the fiscal cliff and start paying more attention to the market’s actions.
I hope she listened, because yesterday’s big market spike (The Fiscal Cliff Aversion Relief Rally) brought some nice gains to Cabot readers who held their ground and ignored the deluge of media.
Hopefully, you were one of them.
But if you weren’t, I’ve got to ask why.
Is it because you were afraid (thanks in part to the media)?
Or is it because you were confused? Perhaps you lack an investing discipline.
In either case, the solution is education, and you can get that education from any of Cabot’s services, including the newest, which we’re excited to present this summer.
Announcing the Cabot Investors Conference!
Where: Salem, Massachusetts, in the Hawthorne Hotel
When: August 14-16
What: Expert advice on becoming a better investor
Who: Hopefully, you!
Mike Cintolo, editor of Cabot Market Letter and Cabot Top Ten Trader
Paul Goodwin, editor of Cabot China & Emerging Markets Report
Robin Carpenter, editor of Cabot ETF Investing System
Roy Ward, editor of Cabot Benjamin Graham Value Letter
Tom Garrity, editor of Cabot Small Cap Confidential
Chloe Lutts, editor of Dick Davis Investment Digest and Dick Davis Dividend Digest
Timothy Lutts, editor of Cabot Stock of the Month and president of Cabot Heritage Corporation
… and more!
The conference will begin with a cocktail reception on the evening of August 14, and end at noon on August 16. Between those times, our experts will provide investing wisdom on their various specialties, answer questions from the audience, and be available—at no extra charge—for one-on-one discussions. We’ll also provide lunch on the 15th and a buffet breakfast on both the 15th and 16th.
The conference registration fee will be $995 per person, but we’ll be offering a discounted registration of $850 if you register by March 31. Details on that will be provided soon.
In the meantime, I recommend that you save the date!
And if you’re already convinced, I recommend that you reserve your room now!
As in many historic lodgings, the rooms in the Hawthorne Hotel are a variety of sizes and shapes. The hotel’s policy is to allocate the biggest and best rooms first. So if you reserve your room early, by calling the hotel at (978) 744-4080, you’ll get one of the best! Be sure to ask for the Cabot Investors Conference special rate of $139 per night (code CHC814). It’s a great deal.
More details coming soon.
Here’s another installment of my series, “Ten Stocks to Hold Forever.”
The basic idea is that if you invest intelligently in young stocks with great growth potential and never sell them, some will go bankrupt (you’ll lose 100% of those investments) but some will succeed spectacularly, multiplying far more than 1,000%, and the gains from those few big winners will dwarf your losses.
Plus, because you never sell, you’ll never pay taxes on the gains, and you’ll pass all your gains to your heirs, tax-free!
You can read much more on the concept here.
Or you can jump right into #3 of this year’s selections, all of which were chosen by the Cabot editors.
It’s First Solar (FSLR) the Arizona company that’s engaged in manufacturing solar panels, and it was chosen by yours truly.
Coincidentally, First Solar was also featured in last week’s issue of Cabot Top Ten Trader.
Here’s what editor Mike Cintolo wrote in that issue.
“First Solar is a pretty good stand-in for the fortunes of the entire solar industry. The company was a monster back in 2007, when governments (especially Germany) flush with cash were offering big subsidies for solar projects. The big limitation on the industry then was a shortage of silicon. And that shortage made First Solar’s patented thin-film technology a big winner, because it held down material costs and sidestepped supply issues. The company’s 273% revenue growth that year tells the story. That annual growth rate dwindled to just 8% in 2011. But, as frequently happens when companies can weather huge downturns, First Solar is bouncing back, with nearly half of sales coming from U.S. buyers and just 23% from Germany. Estimates are for First Solar to do $3.62 billion in sales in 2012, which will be a 31% increase. Oil prices are high enough to make solar look attractive again and the industry, after losing many weaker competitors, is in great shape for 2013. First Solar has a manufacturing capacity of two gigawatts of solar arrays, and the company’s strategy of targeting large-scale projects makes it a strong bidder for both U.S. and global business. Chinese solar stocks have been rallying since the Chinese government’s announcement on December 19 that it would cut subsidies to solar companies, allow bankruptcies and encourage mergers and acquisitions, which should cut the global oversupply of manufacturing capacity. First Solar looks to be back on the growth track.
“FSLR shot from 24 to 317 from November 2006 to April 2008, then got slammed by the Great Recession. But the biggest drop came in the 12 months from February 2011 to May 2012, when the stock plummeted from around 175 to as low as 12. FSLR has now more than doubled off those lows, and institutional support has started to revive. FSLR has been through its romance phase and a bigger correction than most. It looks now like it’s ready to appreciate on its own solid growth and growth prospects. The stock’s dip from its high of 33 a couple of weeks ago marks a decent entry, with a logical stop near 26.”
When Mike wrote that, the stock was trading at 30. Yesterday it hit 34, so short-term, it’s a success, and I think the prospects are bright for the weeks and months ahead.
But how do I justify holding First Solar forever?
First, I note that the energy industry is universal, and demand for energy is bound to grow as the developing world adopts all the tools and toys of the developed world, from cars to dishwashers to big-screen TVs.
Second, I note that there’s growing demand for non-polluting sustainable energy solutions, mainly solar and wind. Both have their advantages, with location often dictating which is the better solution.
Third, I note that First Solar has continued to grow revenues every year—even through the 2008-2009 crisis—and it’s remained solidly profitable every year, too, including north of $4 per share in 2012. Those are the signs of a well-run company in a good industry.
Fourth, I note that while FSLR was adored by investors back in early 2008, there’s no love for it today. Back then, it was the market’s biggest gainer, and traders were riding it to the moon! Today, revenues are more than double what they were then, and earnings are comparable, yet the stock’s valuation is immensely lower, as the stock is trading at less than a tenth of its price back then.
In short, the company has enormous growth potential and its stock is cheap!
The one caveat I have about the “forever” play is this: I think FSLR could roll over sometime in the months—even years—ahead to retest its low at 12. My reasoning for this thinking is simply experience. Generally, stocks need many years out of the public eye for the old love to fade. With over four and a half years of correction under its belt, FSLR may have had enough time, but more would be better. Furthermore, stocks usually need a couple of bottoms—typically diminishing in severity— to shake out stubborn shareholders before a true recovery can begin. Ideally, these retests happen at higher lows and lower volumes. FSLR has not had any retests of its June bottom, so the potential is still substantial.
If such retests are in the cards, there might be a better entry point in the months—even years—ahead.
Of course, I could be wrong. So the best way to play it is to buy now (or on any near-term pullback) and hold it as long as it climbs higher.
Even better, take a no-risk trial subscription to Cabot Top Ten Trader and stay on top of Mike Cintolo’s latest recommendations about FSLR and other great growth stocks.
Yours in pursuit of wisdom and wealth,
Editor of Cabot Stock of the Month
Timothy Lutts heads one of America’s most respected independent investment advisory services. Each week, Tim personally picks the single best stock in his exclusive Cabot Stock of the Week advisory. Build your wealth and reduce your risk with the top stock each week for current market conditionsLearn More