By Elyse Andrews
FAQ and a Great Growth Stock
Stock Market Analysis Video
In Case You Missed It
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Today, I tackle a few notable questions from readers that are probably indicative of wider sentiment. We love hearing from you, so if you have a question, send it to us by replying to this email. Without further ado …
Question: When should I sell a previously recommended BUY? My weakness: I never saw a stock I didn’t like.
Answer: We get this question A LOT! It’s something we’ve struggled with ourselves. Over the last 40 years, Cabot has developed a growth stock investing system that allows us to choose the market’s top stocks at precisely the right time. But how do we know when to sell? This is where one of our top investing rules comes in: Cut your losses short.
Cabot Market Letter uses a loss limit of 15%-20%, depending on whether we’re in a bear or bull market. That is, if any stock closes out a day giving us a loss of 20%, we’ll sell on the next trading day. Coming up with a strict sell rule to follow is the key. Yes, sometimes after you sell a stock for a loss, it will move higher. But more often than not, the stock will continue lower and you will have gotten out without severely damaging your portfolio.
On the other hand, you will have many winners, and knowing when to sell them is more difficult. In general, though, we believe it is wise to sell when a stock has underperformed the market for eight weeks or more. The stock’s relative performance (RP) line is a good indicator of this.
Question: I would like to see each newsletter more fully explained as to which type of investor it’s best suited. I like “steadier equity.” What newsletter would one subscribe to for that benefit?
Answer: A detailed comparison chart of our newsletters can be found here. But here’s a quick summary:
Traditional growth investors subscribe to our flagship Cabot Market Letter or Cabot Green Investor.
Aggressive investors are comfortable with the high-momentum stocks in Cabot Top Ten Weekly or the fast-growing foreign stocks in Cabot China & Emerging Markets Report. Or they may like the fast-paced options trades in Cabot Options Trader.
Conservative investors follow the Cabot Benjamin Graham Value Letter to invest in high-quality undervalued stocks. (This is good for people seeking steadier investments that mature over time.)
Long-term investors find undiscovered emerging companies in Cabot Small-Cap Confidential.
If you’re not sure, Cabot Stock of the Month can give you a sampling of each of these advisories, while you decide which is best for you.
Question: How do I pick a winner?
Answer: Obviously no one can predict exactly which stocks will become the next big winners, but the editors at Cabot have spent the last 40 years developing a system that puts the odds in your favor. Here are some tips that will help you pick high-potential growth stocks:
- – Search for strong sales and earnings growth (especially triple-digit sales growth).
- – Search for revolutionary products with major benefits (like First Solar, Crocs, Green Mountain Coffee Roasters and Baidu).
- – Stick with stocks that are liquid, to avoid gut-wrenching volatility (usually at least 600,000 shares traded per day or more).
- – Find a company that has a big idea … one that has few if any limits on its future growth potential. It’s these big ideas that create an atmosphere that can push a growth stock to dizzying heights!
- – Buy growth stocks with strong relative performance (RP) lines. RP studies are a superb way to identify successful companies and to avoid problem companies. You should buy stocks that are consistently outperforming the market. This is a good indication that they are under accumulation, week after week, month after month, and that the companies are succeeding. The best investing tips come from the performance of the stocks themselves. So ignore hot tips!
Last week, I wrote about two stocks of companies that I’m personally interested in [Zipcar (ZIP) and Panera Bread (PNRA)] and today, I’ve got another one for you: Whole Foods Market (WFMI), one of my favorite places to grocery shop! And the stock has been a favorite of Cabot Top Ten Trader for a few months now. Editor Mike Cintolo wrote this about it at the end of March:
“Consumer demand for organic foods never fell as hard as predicted in the Great Recession. In fact, unlike every other food segment, organics never dropped, just grew at a slower rate. That means Whole Foods weathered the bad times pretty well, even though the recession did contribute to the introduction of madness sales where one item—tulips or bread—is deeply discounted for a day or two. Still, with the economy improving, Whole Foods can refocus on its historic strength: selling high-margin products to well-off customers. Its prepared foods have long been a profit engine and now it’s reportedly testing adding bars serving craft beers to some locations. The fact that natural products consumers aren’t as price-sensitive as the average person means Whole Foods should be able to pass along commodity price increases to customers more easily too, especially without a recession to weigh on shoppers’ minds. The 299-store company is enjoying an excellent 2011, share-wise, with the stock up 39% so far to 64, the highest price in more than three years.
“After building a base in the mid-40s in December, WFMI has been steadily working higher, helped along by excellent first quarter sales results, which popped shares higher in early February. Recent weeks show signs that institutional traders are accumulating shares, extending a trend over the past year that has seen mutual funds boost their WFMI holdings 13% to 81 million shares. Shares likely need to step back toward 60, which would be a good spot to buy.”
Since Mike’s recommendation, WFMI has continued to climb. Cabot Top Ten Trader subscribers are currently sitting on 50% profits in the stock and Mike thinks it still has room to go. To get his latest recommendation on this and other top stocks, click here.
In this week’s Stock Market Analysis Video, Cabot Market Letter Editor Mike Cintolo says that after a multi-month run up, the market needed a correction, which the last two months have provided. The market is now showing signs of life and looks like it’s ready to get going, especially if all goes well next week. Stocks discussed: Green Mountain Coffee Roasters (GMCR), Molycorp (MCP), Qlik Technologies (QLIK) and Amazon.com (AMZN). Click below to watch the video.
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The Shocking Truth About the New Bull Market
With unemployment rising, real estate prices spiraling south and oil prices surging, it’s clear the market’s volatility is about to increase exponentially—especially headed into earnings season.
For these reasons, the next market move we see headed our way in the next 30 days could be the biggest shocker of 2011. My free report reveals what you must do now to protect yourself and profit.
On Monday, Cabot Benjamin Graham Value Letter Editor Roy Ward wrote a step-by-step guide on how to start investing and how to prepare your portfolio for retirement. Roy also included a list of stocks he thinks are solid choices to begin your portfolio.
On Thursday, Cabot Green Investor Editor Brendan Coffey discussed his recent car-buying experience and why he didn’t go with an electric or hybrid vehicle. Brendan also discussed the long-dormant battery industry and how it’s beginning to innovate again. And he finished by recommending a stock for lovers of cars—and iPads. Featured stock: Polypore (PPO).
Until next time,
Editor of Cabot Wealth Advisory