Stock Market Video
When Value Stocks Are Also Growth Stocks
This Week’s Fortune Cookie
In Case You Missed It
In this week’s stock market video, Mike Cintolo says the market remains on an upward course, and even some measures of the broad market are perking up. He also details what he’s looking for in new buys: pullbacks in current leaders and new leaders that are emerging from multi-month (and sometimes multi-year!) consolidations. There are more than a few of them!
When Value Stocks Are Also Growth Stocks
When I started out as a stock analyst at Cabot, I had a lot to learn. Fortunately, the company gave me a long apprenticeship while I built up my knowledge of the stock market, growth investing and the investing wisdom that Cabot had accumulated over the years.
Some days all I had to do was read books on technical analysis, look at charts and study past issues of Cabot Market Letter. It was great, and it built a much deeper understanding of growth investing than I would have had if I’d just jumped in.
I went through one phase during my education of running stock screens on the entire market, probably on Yahoo Finance, although I’m not sure.
I’d screen for market cap and trading volume (for liquidity), low P/E (for value), increasing profit margins, rising trading volume, increasing revenue and earnings growth, increases in institutional sponsorship, analyst upgrades, and, of course, soaring stock price. Then I’d look at the charts for each stock to see what turned up, building a sense of what actually made a difference and what didn’t.
During this unsystematic and unscientific hacking around in the haystack looking for the elusive needle, I came to a couple of conclusions. The first was that I had a huge preference for stocks that were going up … now. I had no patience with good fundamentals or cheap valuations that meant that a stock should go up in the future. And since this insight accorded with one of Cabot’s favorite sayings (“The most bullish thing a stock can do is go up”), it cemented my investing personality as a growth investor.
But the second conclusion was that I was really intrigued when two different screens wound up selecting the same stock. The idea of “convergent validity,” when two unrelated pieces of evidence point in the same direction, really appealed to me.
My favorite was when a value screen and a growth screen wound up agreeing with one another, indicating that a company with good fundamentals and cheap valuation was also acting like a growth stock, enjoying good price action.
I’m sorry for the very long introduction, but I think it’s good background for what I’ve found, which is 10 stocks that have been featured in Cabot Top Ten Trader and also in Cabot Benjamin Graham Value. This combination of recommendations makes for a doubly interesting list of companies, and I’ll be writing about all 10 in future issues.
Remember, the value stocks that appear in Cabot Benjamin Graham Value are vetted for soundness, historical revenue and earnings growth, projected revenue and earnings growth, dividend history and a bargain price versus past and future earnings. While a Cabot Top Ten Trader stock is selected for strong price growth in combination with an attractive business proposition and top-notch earnings growth, either now or in the not-too-distant future.
Here’s the first of our versatile qualifiers.
Boeing (BA) is a big, dividend-paying company with a market cap of almost $90 billion. It’s so big that it’s a component of the Dow Jones Industrials. And yet BA is up almost 70% over the past year, which isn’t bad when you compare it to the 17% gain in the S&P 500.
Here’s what Cabot Top Ten Trader had to say about the company in its latest appearance on September 23:
“Few growth investors will dig into a story like Boeing’s, assuming that this behemoth ($83 billion in revenue!) will be a slow poke. But the stock has a storied history of embarking of strong, persistent, multi-year upmoves, and we think another one of those just got underway in March. The big ideas here are that, first, Boeing’s new 787 Dreamliner, after numerous delays and problems, is finally being built and shipped; its larger but more fuel-efficient than many current jets, and orders have been huge. Second, and more generally, the entire jet industry is entering a big new order phase, as most are in good financial shape (for the first time in many years), and many international operators are rapidly expanding their fleets. Thousands of orders in backlog and increasing production rates should help Boeing’s earnings crank ahead by 15% or so for the next couple of years, but the big story is cash flow—according to one analyst, the firm’s free cash flow will total $13 per share in 2015 and actually grow from there. And management has said it wants to return 80% of free cash flow to shareholders each year! Translation: Dividends (now 49 cents quarter, yield of 1.6%) and share buybacks should expand greatly, which combined with growing earnings and a reasonable valuation (18 times this year’s estimate) should prod big investors to continue accumulating shares. We like it.”
Benjamin Graham Value Investor, meanwhile, includes Boeing in its list of 275 Top Value Stocks. With a maximum buy price of 64.52 and a minimum sell price of 90.07, BA has already outdistanced its rating as a value stock. But its five-year estimated earnings growth of 8.4%, its dividend yield of 1.9% and its current price-to-earnings ratio of 19, Boeing is a very solid corporate citizen.
If I’m right, Boeing is a much stronger stock for having survived both the fundamental rigors of a value analysis and the momentum requirements of a growth evaluation.
Stay tuned. We’ll have nine more of these doubly qualified stocks to feature in the weeks to come.
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They Laughed When I Bought Tesla …
Last year, when I told my Cabot Top Ten Trader readers to back up the truck and buy Tesla with both hands, I got a lot of flack from my colleagues in the trading world.
But now that it’s handed my readers 386% profits, it’s no wonder why Cabot Top Ten Trader is considered Wall Street’s leading trading advisory.
As you’ll see in today’s Cabot Top Ten Trader, this week’s top 10 trades have even higher potential.
Get my entire buy list tonight and see for yourself. Click here for details.
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Here’s this week’s Fortune Cookie. Remember, you can always view all previous Fortune Cookies here and Contrary Opinion buttons here.
Tim’s Comment: Note: Tim is on vacation, and I decided to give him a break by not asking for his comment. I also decided to give Mike Cintolo a break by asking him instead.
Mike’s Take: While most people think of stock investors as highly confident, even cocky, all of us in the office strive to remind ourselves that we don’t know as much as we think we do. In my experience, it’s the amateurs that have the strongest, hard-and-fast opinion about where XYZ stock is heading, or what the market is going to do next month. The old timers tend to say, “There’s a chance of this turning out pretty good” and are often right and early.
Paul’s Comment: I guess this is just another variation on the theme of “Don’t Get Cocky?” You need a certain amount of certainty just to make any investment at all. But an excess of certainty (which translates to a lack of rational caution) can really mess you up. It’s all about balance.
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In case you didn’t get a chance to read all the issues of Cabot Wealth Advisory this week and want to catch up on any investing and stock tips you might have missed, there are links below to each issue.
Cabot Wealth Advisory 9/23/13 — My Final Revolutionary Stock
Tim Lutts, Cabot’s president and the analyst who writes Cabot Stock of the Month, prints a few of the replies he got to his complaint about advertising. He also profiles Mike Cintolo, editor of Cabot Top Ten Trader (football, family and stocks) and gives the last of his ten revolutionary Stocks. Stock discussed: YY Inc. (YY).
Cabot Wealth Advisory 9/24/13 — My Favorite Investment Today
Robin Carpenter, the super-quant who helms Cabot ETF Investing System, writes in this issue about an ETF he recommended at the Cabot Investors Conference. It’s an ETF that aggregates stocks that are heavily held by top hedge fund managers. ETF discussed: Global X Top Guru Holdings (GURU).
Cabot Wealth Advisory 9/26/13 — Can He Do It When the Band’s Playing?
Cabot Top Ten Trader maven Mike Cintolo writes in this issue about his obsession with football. He compares the process of evaluating draft picks with the stock-selection process. Stock discussed: Qihoo 360 (QIHU).
Have a great weekend,
Paul Goodwin
Editor of Cabot China & Emerging Markets Report
and Cabot Wealth Advisory
P.S. The China Bulls are Back! Don’t miss an opportunity to profit from great stories like Qihoo 360 (QIHU) that brought us 90% gains, or Ctrip (CTRP) that brought us 159% gains.
The Cabot Emerging Markets Timer just flashed a new buy signal, indicating that emerging market stocks are in an uptrend. We’re responded by adding one new stock with a great story and profit potential to our portfolio. Find out the name of this high-potential stock by clicking here.
