Answering Readers’ FAQs
Stock Market Analysis Video
In Case You Missed It
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This week, I collected the responses from the survey found at the bottom of each issue of Cabot Wealth Advisory. Many of you have taken the time to fill it out and I appreciate all of your feedback. Several readers asked the same questions, so this week, and for the next few weeks, I’ll be going over those topics. Without further ado ...
Question: I lost a lot of money in the first year of Cabot Small-Cap Confidential. I would like to know what has been your success (or lack thereof) in the following years?
Answer: We started Cabot Small-Cap Confidential in September 2007, right as the market was topping. As you know, the year-and-a-half that followed was anything but kind to investors. Since then, Editor Thomas Garrity has fared much better, refining his system to include taking more profits on the way up and cutting losses shorter. However, the stocks Tom recommends will always be speculative and thinly traded, making them subject to volatility. And it’s important to keep in mind that Tom is recommending these stocks primarily as longer-term investments.
Currently, Tom is covering about 16 stocks (keep in mind that this is not a portfolio, but a list of small-cap investing ideas). His greatest loss is -18%, while his greatest profit is 211%. He has four other losses, -17%, -5%, -4% and -3%. His other profits are: 6%, 10%, 10%, 11%, 22%, 42%, 58%, 63%, 67%, 114%, 142% and 211%.
I can’t reveal the names of any of the stocks, as it would be unfair to Tom’s exclusive group of subscribers, but I will tell you about some of his past recommendations that have been sold.
Tom recommended Depomed (DEPO) in February 2009 at 2.35 and sold it in October at 3.82 for a 63% profit. Tom recommended Acorn Energy (ACFN) in June 2009 at 2.67 and sold it in January 2010 at 5.65 for a 112% profit. Tom recommended Magma Auto Automation (LAVA) in March 2010 at 2.44 and sold it in October at 4.03 for a 65% profit.
If you’d like to, you can learn more about Cabot Small-Cap Confidential by clicking here.
Question: Why can’t current subscribers receive the free January Surprise Cabot Market Letter report?
Answer: You can receive it! We get this question a lot, so we’ve decided to implement a new system whereby all new Special Reports are sent to the current subscribers of each publication. In the meantime, or if you want to read more Special Reports, just log on to the Cabot website and go to the publication that you subscribe to. Each publication has a designated section for Special Reports and other tools that can help you take advantage of all your subscription has to offer.
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 (we like to see at least 600,000 shares traded per day).
* 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!
Question: What are some good Indian companies that are likely to do well in future?
Answer: Cabot China & Emerging Markets Report, written by Editor Paul Goodwin, is where you’ll find the top stocks from the BRIC (Brazil, Russia, China and India) countries. Paul recommended Indian company Dr. Reddy’s Laboratories (RDY) in November, writing this:
“Dr. Reddy’s still gets 69% of revenues from the sale of generic drugs. But the company is also a contract manufacturer of active pharmaceutical ingredients, finished dosing forms and biotechnology products for other pharmaceutical concerns. And a program of original research into potential treatments for cancer, diabetes, cardiovascular disease, inflammation and bacterial infection has produced a strong pipeline of drugs in clinical trials.
“Dr. Reddy’s Labs has over 40 families of products in distribution in the U.S., and 69 Abbreviated New Drug Applications (ANDAs, which are requests for approval of generic drugs) in submission to the U.S. Food and Drug Administration. Of these applications, 32 are “Paragraph 4" filings (claims that products do not infringe on patents or that the patents are not enforceable) and 19 are “first-time filings.” Outside India, the company also has strong generic drug market positions in Russia, the U.K and Germany.
“While Dr. Reddy’s gets only 2% of revenue from sales of its own proprietary products, the company has used both internal resources and outside acquisitions to increase its original research capability, as well as its generic manufacturing capacity. In 2005, the company bought Roche’s custom pharmaceutical services business for $62 million. And in March 2006, the company sealed its acquisition of Betapharm, the fourth-largest generic drug manufacturer in Germany, and with it Betapharm’s portfolio of over 145 products. A partnership with Argenta Discovery is aimed at development and commercialization of a new treatment for chronic obstructive pulmonary disease.
“The earnings line for Dr. Reddy’s Labs has been improving rapidly with an estimate-beating 41% jump in Q3 earnings reported on October 23. This quarterly report also showed an 8% gain in revenues and a 15.3% after tax profit margin that was the highest in years. Estimates for the full fiscal 2011, which ends in March, are for $1.44 per share, up 251% from the prior year.
“The long-term chart for RDY shows a stock that spent all of 2006 and 2007 and part of 2008 trading sideways in a tight range in the teens, which is appropriate for a steady state company. But after the big correction in 2008, the stock blasted off from its low of 7 and hasn’t made a major correction since. The portfolio owned the stock earlier this year, but got shaken out last July. The move that began with the stock blasting off from its double bottom at 28 in August pushed RDY to 40 before a little weakness showed up. We think you can buy RDY right here. BUY.”
And the stock is still recommended buy. To find out more about RDY and other top emerging markets stocks, click here.
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In this week’s Stock Market Analysis Video, Cabot China & Emerging Markets Editor Paul Goodwin discussed the U.S. and Chinese markets. The U.S. market had a good week, but our China-Timer has turned negative after the government there announced that it would hike interest rates. Stocks discussed: Abercrombie & Fitch (ANF), Acme Paket, (APKT), VanceInfo Technologies (VIT), Ctrip.com (CTRP), Dangdang (DANG) and Youku.com (YOKU). Click to watch the video.
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Wall Street’s Next Big Shocker
With unemployment rising and real estate prices spiraling south, it’s clear the market’s volatility is about to increase exponentially-especially headed into the new year.
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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 12/6/10 - Six Great Growth Stocks
On Monday, Timothy Lutts wrote about his recent test-drive of a Nissan Leaf and his belief that someday, it and other electric cars will become popular as they are improved. Tim also discussed six great growth stocks in a format called high-low. Featured stocks: Netflix (NFLX), Coinstar (CSTR), Apple (AAPL), MetroPCS Communications (PCS), Sotheby’s (BID) and Dollar Tree (DLTR).
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Cabot Wealth Advisory 12/9/10 - How to Handle Your Winning Stocks
On Thursday, Michael Cintolo discussed portfolio management and four strategies that you can use to handle your winning stocks. Mike also discussed a stock that he calls the “King of Data Storage.” Featured stock: NetApp (NTAP).
Until next time,
Elyse Andrews
Editor of Cabot Wealth Advisory
P.S. Don’t forget to reserve your copy of Cabot’s 10 Favorite Low-Priced Stocks for 2011 by December 12, 2010, to get a 15% discount! There’s only one day left, so don’t delay. Order now!