The Early Bird Gets Eaten
Three Stocks for Back to School
Public Opinion is the Scarecrow of Society
Stock Market Video
During Monday’s stock market sell-off, I received an interesting email from a subscriber with whom I regularly communicate. I initially intended to summarize it for you, but I came to the conclusion that his message is well written, I should just publish it here for you to read:
“This one is me, a newer stock trader, wanting to give one piece of important advice to other newer traders out there. With the huge waterfall of red in the market here lately, as the newer traders watch their accounts dry up, an undisciplined trader will want to dive back in at the first decent bounce. This is a huge (and costly) mistake. The early bird indeed gets eaten. I don’t know when you are putting out your next article in the Cabot Newsletter, but can you please for the newer traders out there, stress that the market is very dangerous right now and that easing back in at some point is the best way back, not diving in. This was one of the hardest and most important lessons I had to learn when I first started. I imagine that there are thousands out there who would benefit from you reminding them to take it easy getting back in the market after it does find a bottom.
“Here’s to the traders who are completely out, or who have just one stock left (like me). I have just a 1/3 position left in the stock and the rest of my account is cash since last Monday. I hope you are weathering this storm as best you can also.”
My response praised M. Liner’s ability to learn this very difficult lesson and promised to share his sentiments with you all today.
It’s tempting to buy a stock you’ve had your eye on for a while now that it’s likely significant less expensive than it was a week or two ago. But it’s unlikely that you’ll score big profits when the broad market is unsupportive. In fact, many stocks will probably lose more ground before their charts start shaping up.
That’s not to say that all stocks are poor investments right now. We’re not 100% in cash, but we don’t advise heavy new buying in growth stocks until the dust has settled. Our growth newsletters have held onto some of their best-performing stocks, thinking they’ll get going again once the broad market becomes more supportive. But these are stocks that have been leaders of the bull market. We currently have significant profits in them and in some cases, we’ve already sold part of our positions on the way up. If you still own many stocks that are under water, we urge you to sell into rallies.
While many others in the financial world are crying that the sky is falling, we’re following our time-tested system that keeps us out of the market when it’s unsupportive and get us buying heavily again once it begins moving higher again. Waiting for the right time isn’t easy, but it’s smart. And preserving your capital is the best way to prepare for the market’s next advance. The question isn’t if it will happen … but when. And you can be sure we’ll be here to tell you as soon as our market timing indicators confirm it.
Back to school season is upon us and I think that with the economy still struggling, people are more likely to frequent discount retailers where their dollar will go further. So today, in the midst of this market mayhem, I have three stocks for you to consider that could benefit from a weaker economy.
The first is Dollar Tree (DLTR), which was hot during the Great Recession in 2008/2009. And with the economy still down in the dumps, it’s hot again!
The company, which as its name implies, sells everything for $1 or less, has reported double-digit earnings growth for 13 straight quarters. It currently sits atop the Investor’s Business Daily Retail-Discount and Variety industry group, which itself is doing well. The group now occupies in the #8 spot (out of 197 industries), up from #33 just three weeks ago!
The second stock is Kohl’s (KSS), which reported just this week that its profits jumped 17% in the second quarter over the year-ago period. And the store, which sells brand name clothes, home goods and other products for less, raised its forward guidance.
Kohl’s Q2 net income was $303 million, or $1.09 per share, up from $260 million, or 84 cents, in Q2 2010, and above analyst views of $1.05 cents a share. Revenue rose 4% to $4.25 billion, slightly below analyst forecasts of $4.32 billion. Kohl’s also reported that revenue at stores open at least one year increased 1.6%.
The third stock is TJX Companies (TJX), which is similar to Kohl’s in that it offers lower-priced brand name goods like clothes, accessories and housewares. It also operates HomeGoods, Marshalls and A.J. Wright stores.
TJX doesn’t report earnings until next week, but when it does, analysts are looking for profits of 88 cents per share, a 20.5% jump from the same period last year. Wall Street also wants to see $5.43 billion in revenue this quarter, a 7.1% increase from the 2010 quarter. Analysts also expect a 6.6% jump in full-year revenue to $23.09 from $21.66 billion last year. And TJX’s revenue has already risen for four quarters in a row.
As we all know, the market is in the pits right now, so I advise caution if you choose to invest in any of these stocks. Right now, they’re all featured in Cabot Benjamin Graham Value Letter on Editor Roy Ward’s list of the 250 Highest Ranked Wise Owl Stocks. To get his current recommendations on these and other high-quality value stocks, click here now.
Now for this week’s Contrary Opinion Button. Remember, you can always view all of the buttons by clicking here.
Public Opinion is the Scarecrow of Society
Attributed to Dickson G. Watts, president of the New York Cotton Exchange from 1878 to 1880, who wrote “Speculation as a Fine Art and Thoughts on Life,” this cryptic button, like many from the Contrary Opinion Forum, points to the value of standing apart from the herd. Public opinion reinforces the fears that prevent most investors from harvesting the fruits of the garden. Yet public opinion is no more than a man made of straw.
In this week’s Stock Market Video, Cabot China & Emerging Markets Report Editor Paul Goodwin says now is a great time to use moving averages to determine the momentum of the markets. Paul looks at the S&P 500 and the Nasdaq, where the 25-, 50- and 200-day moving averages indicate that the short-, intermediate- and long-term trend of the markets is down. Right now, you should be watching the market closely, building your watch list and keeping your powder dry. Stocks discussed: Netflix (NFLX), Lukoil (LUKOY), Baidu (BIDU) and Green Mountain Coffee Roasters (GMCR). Click below to watch!
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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.
On Monday, Cabot Publisher and Cabot Stock of the Month Editor Tim Lutts discussed what he learned during his recent experience with jury duty. Tim also wrote about the current stock market conditions and a value stock that’s holding up well. Featured stock: MasterCard (MA).
On Tuesday, I brought you a special edition of Cabot Wealth Advisory featuring a special video bulletin by Cabot Market Letter Editor Mike Cintolo in which he discussed the stock market’s sell-off and what it means for your portfolio. Mike references similar historical market events and what they tell us about where we could be headed.
On Thursday, Cabot China & Emerging Markets Report Editor Paul Goodwin discussed how mutual funds invest and why that method won’t bring individual investors the highest returns. Paul also wrote about two value stocks from the emerging markets. Featured stocks: Companhia Siderurgica Nacional (SID) and Tata Motors (TTM).
Until next time,
Editor of Cabot Wealth Advisory