It’s been a few months since I wrote about “my” Ukrainians, so I’ll start with a little background.
Four and a half years ago, when my second daughter was a high school junior, my wife and I hosted a Ukrainian exchange student named Halyna, who was one year younger and turned out to be the best exchange student a family could ask for.
She ate everything offered, happily. She washed her dishes. She took short showers. She spoke decent English and was always willing to chat. And she didn’t even mind when our new puppy jumped on her clean jeans!
Furthermore, she was a great student, making the most of her one-month sojourn in America … which included, of course, a trip to New York City.
After she returned to Ukraine, we kept in touch as she attended first the Aviation University in Kiev and second, the University of Lethbridge in Alberta, Canada. And last year, thanks in part to our efforts, she applied for and received a student visa and transferred here to Salem State College, where she’s continuing her studies in business.
In addition to her four courses, she works two part-time jobs at the college. She has a cozy little apartment – neat as a pin – that she shares with her Ukrainian boyfriend, who has a green card and works in the construction industry. And she still keeps in touch with us.
So the other evening we were sitting in their apartment enjoying some traditional Ukrainian appetizers and wine, and catching up with their lives. That these kids will get married in a year or two is certain, but one of the perennial questions is whether their long-term future lies in Ukraine, where friends and family have been left behind, or here, in the land of opportunity, where the jobs are! And more and more it’s looking like the U.S. is the answer.
But the reason I bring Halyna up today is that while talking about my business, she asked, “Do you think the Fed will cut rates again?”
My easy answer was “Yes, several times more!” And that answer is based on the simple fact that interest rate cuts, just like interest rate hikes, tend to come in long strings.
But my real thought is this. When everybody in America is wondering whether the Fed will cut rates again, you should probably be thinking about something else!
The reason for this thought is simple contrary opinion. When everyone is looking at the same indicator, that indicator tends to stop working. If it did, making money in the market would be easy … and it’s not easy.
There’s no question that interest rate cuts in general are good for the economy and thus the stock market. And there’s little question – at least in my mind – that the Fed will cut rates again. But now that everyone is focused on the Fed, I’m confident that the more important clues to the future of the market lie somewhere else.
So where to look? Non-farm payrolls? Consumer non-durables? The price of oil? The price of steel in China? No doubt all are important at some level. But for my money, the very best indicator is the market itself, and when I look there, here’s what I see.
Trends are up, but overextended, suggesting that a normal correction is likely. Our Hi-Lo Alert, which measures the number of Dow stocks above their medium-term moving averages, is at its highest point since May, just two weeks before the market got very rocky and embarked on the course that took it down to the August low.
Now, that doesn’t mean we’re in for a repeat of the big summer correction, but it does suggest to me that building a little cash here might be prudent.
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And now a word on insider selling.
Year after year I get questions about insider selling in stocks that have been strong. Most recently, the topic has been Crocs (CROX), which is up 217% year-to-date.
What’s interesting about this stock is that 38% of CROX shares are sold short, by investors betting the stock will fall in the weeks and months ahead. Instead, the stock continues to power ahead, fueled in part by the buying of short-sellers who must meet their brokers’ margin calls; these folks, basically, are forced to buy CROX to cut their losses short. But for every short who covers, it appears that new ones appear out of the woodwork to sell, because the total short interest on the stock remains high!
And these folks get frustrated … and desperate. So they spread stories around to try to knock the stock down, one of which is that insiders are selling the stock!
And technically, this is true. In the past few months, CEO Ron Snyder has sold over 162,000 shares under a prearranged 10b5-1 trading plan. Such plans allow insiders to set up a program in advance for such transactions and proceed with them even if he or she comes into possession of material nonpublic information.
So Snyder’s selling is not necessarily a bad thing, or a sign of his lack of confidence in the company. In fact, as we’ve long explained to readers, there are many legitimate reasons for insiders to sell stock – most commonly these sales are a way to get paid or a way to build diversification.
On the other hand, there’s only one reason for an insider to buy his company’s stock, and that’s a belief that it will be worth more in the future. So it’s interesting to note that over the same period, Snyder has acquired (at very low cost) over 157,000 shares of CROX stock!
In short, he’s using his CROX stock to get paid … and a fine paycheck it is. But there’s no way to conclude from his sales that he believes the stock will be lower in the future.
In fact, I see the same patterns, with lesser amounts of stock, for the company’s vice president of sales and marketing, Michael Margolis, and directors Michael Marks and Raymond Croghan.
Bottom line: Take insider sales with a grain of salt unless you’re certain you can see the entire picture. And remember that short-sellers will do what they can to drive a stock down.
Remember the story about kids’ Crocs getting caught in escalators? Short-sellers did what they could to fan the flames but it didn’t last long, because there was really very little meat to the story. Still, the dip that followed that superficial bad news provided an opportunity for some short-sellers to buy back their shares on a dip.
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Today’s investment idea is Dolan Media (DM). It hasn’t appeared in any Cabot publication yet, in part because it’s rather thinly traded. Daily volume averages 278,000 shares.
But Dolan is nice little growth company and I think an investment in it could work out well in the long-term.
On the surface this is a boring little traditional media company, publishing 14 daily newspapers and 46 non-daily newspapers, focused on the legal, financial and commercial business markets. Some of these are old publications, but they’ve all been cherry-picked by Dolan and acquired (often quite cheaply) because of their growth potential.
More acquisitions are in the works.
And here’s the kicker.
Dolan has a Professional Services Division that enables law firms to process residential mortgage defaults and court appeals more efficiently! And these are both great growth businesses!
Specifically, this division is split into two separate companies.
American Processing Company “uses its proprietary case management software system to assist in the efficient and timely processing of a large number of foreclosure, bankruptcy, eviction, and, to a lesser extent, litigation case files for residential mortgage defaults.”
Counsel Press “uses its proprietary document conversion system to assist law firms and attorneys in organizing, printing and filing appellate briefs, records and appendices that comply with the applicable rules of the U.S. Supreme Court, any of the 13 federal circuit courts or any state appellate court or appellate division.”
In the second quarter, revenues grew 33% to $37.1 million, while the company lost $0.87 per share. But analysts expect the company to earn $0.80 per share next year, and with continued acquisitions and capable management, the future is bright.
As for the stock itself, DM came public just ten weeks ago at a price of 15. Since then it’s climbed steadily to 25. It’s still being discovered by institutions, and with the light trading volume, many still won’t touch it. But if you want to buy a little, I suggest you take a careful look at the chart and try to find a low-risk entry point.
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Yours in pursuit of wisdom and wealth,
Cabot Wealth Advisory