The Year in Verse
New Year’s Resolutions
The Light Will Return
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It’s been a dark year for equity investors, and everyone is stressed. And with the shortest day of the year coming up in a few days, I’m going to lighten things up a bit and give you a little commentary in verse and a few New Year’s Resolutions. Don’t worry, there’s also a stock recommendation at the end. I hope you enjoy it.
When people recall the bad year of ’08
It’s doubtful the word that pops up will be “Great!”
Investors endured a historical mauling--
Economies slumped and the bear came a’calling--
As bankruptcies, scandals and loss heaped their plate.
Now Lehman’s a lemon, a bear ate Bear Stearns!
Detroit’s on the brink as its cash reserve burns!
The Fed is distributing money for free
(For big institutions, but not you and me)
It’s a soap opera called “As the Market World Turns!”
In a year that made most investors feel cursed
The month of October was truly the worst
The Dow and the S&P indexes plunged
And billions in value were quickly expunged
We all were depressed and had wounds to be nursed
We put in a bottom and prayed it would hold
Not wanting to be all in cash (or in gold)
And then we found out just what Madoff was made of
And markets had something else to be afraid of
At times like this, it makes no sense to be bold!
At Cabot, the holiday season draws nigh
We look at our charts and we give a great sigh
We’ve given our readers the soundest advice
But wish that the bull would return in a trice
And finish the year with a resounding high!
If that doesn’t happen (and frankly we doubt it)
We’ll all keep on hoping and when we can shout it
We’ll happily welcome the bull back to town
As markets show they can go up, not just down,
That’s tops on our Wish List, let nobody doubt it.
The year’s longest night is just three days away
We wish you and yours a first-rate holiday.
As days become longer and markets grow healthy
We’ll work to help you become savvy (and wealthy)
And hope you enjoy our CWA!
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New Year’s Resolutions
*I will not invest in any growth stock if I can’t give a one-sentence summary of why I like it.
Hint: Hearing it mentioned online or on a TV show doesn’t count!
*I will not allow any stock position to hand me a loss greater than 20%. Ever.
Note: Knowing when to sell is what separates the market’s victors from its victims.
*I will clean out my portfolio of any stocks in which I have a big loss.
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Here are just a few recommendations from our top stock picks from January 2008:
*First Solar (FSLR) -- up 40% in five months
*Research in Motion (RIMM) -- up nearly 50% in six months
*Hess Corporation (HES) -- up nearly 60% in five months
*Baldor Electric (BEZ) -- up nearly 60% in six months
*Telecommunications Systems (TSYS) -- up 150% in eight months
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My investing idea for today is about a beaten down sector that was the market’s Fair-Haired Boy just a few months ago.
Back when crude oil was sailing along at $140 a barrel (and higher), everyone knew that solar cells were the wave of the future. Silicon was in short supply and companies like First Solar made heroic runs. FSLR began 2007 trading under 30 and peaked in May 2008 at over 300. That’s a winner in anyone’s book!
Now, with crude trading under $40, the wheels have come off solar stocks. FSLR dipped back below 100 in November and the stock looks like it will have to fight its way back up through an army of investors who hold it at higher prices.
I don’t do predictions often, but I’m quite confident that we haven’t heard the last of solar energy. The market, which is always in the business of looking ahead, is telling us that the beginning of a recovery in the global economy within a year is a pretty safe bet.
Economic recovery will bring increased use of all commodities, especially oil, which will begin experiencing upward price pressure as soon as people begin driving more and industries rev up again. Demand in China will increase as more cars are sold and stabilizing employment around the world will increase consumer confidence and put people behind the wheel again.
When that happens, the solar industry, which now has dramatically higher silicon production capacity, will start to come back into its own. The twin influences of increases in the price of oil and decreases in the price of solar power will bring the parity point closer in short order.
My advice concerns a small Chinese silicon refiner and wafer manufacturer called LDK Solar (LDK), but it might apply to almost any solar stock. After six quarters with year-over-year quarterly revenue growth that averaged over 350% and earnings growth that averaged over 650% (latest quarter showed revenue up 241% and earnings up 108%) LDK Solar is trading at a P/E ratio of 5.
This is a well-run company with ambitious management that has increased production capacity both internally and through acquisition.
But it’s not time to buy LDK ... yet.
You need to put this stock on your watch list and pay special attention to the price and the volume action. You’re looking for evidence that investors are beginning to appreciate the value proposition. The stock will have lots of overhead resistance from investors who bought during the solar stampede and who will want to get some of their losses back when the stock starts to rally. A breakout above 20 on good volume will be the signal.
Sincerely,
Paul Goodwin
For Cabot Wealth Advisory
Editor’s Note: Cabot China & Emerging Markets Report has just issued a new buy signal, and while LDK Solar isn’t one of the stocks that it’s recommending as a buy, it’s very much on the Watch List. If you’d like to participate in the exciting advance of the markets in China and the rest of the emerging world, a no-risk trial membership is just a click away.
http://www.cabot.net/info/cem/cemid05.aspx?source=wc01
P.S. From Editor Elyse Andrews: Paul Goodwin was featured on CNBC today, discussing the emerging markets and his recent buy signal. The video is featured on the home page of our Web site.
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