Time Versus Timing
The Future Is Not What It Used To Be
Stock Market Analysis Video
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If you invest in the stock market long enough, you’re bound to hear a lot of often-repeated phrases. Today I want to talk about two that are frequently bandied about, but completely opposed to each other:
“It’s time, not timing.”
“Timing is everything.”
Value investors are firmly in the “It’s time, not timing” camp. Warren Buffett once famously said “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.” This strategy plays a big role in the Cabot Benjamin Graham Value Letter, edited by Roy Ward. He doesn’t hold stocks for 10 years, but he does buy low and hold on for a couple of years until stocks have reached their fair market value.
On the other side of the spectrum are growth investors, who adhere to the “Timing is everything” philosophy. This is the basis of Cabot’s growth stock market timing indicators that you’ll find in Cabot Market Letter and a big reason that our subscribers were safe on the sidelines during the 2008 bear market.
And our timing indicators are keeping our subscribers safe right now. Cabot Market Letter Editor Mike Cintolo recommended moving largely to cash several weeks ago and has held firm on that position, as the market has continued to weaken since the beginning of June. Our Cabot Tides proprietary market-timing indicator is bearish right now, indicating the intermediate-term trend of the market is down.
But we don’t believe that we’re in for a long bear market. Our long-term market-timing indicator, the Cabot Trend Lines, is still bullish and our Two-Second Indicator hasn’t shown broad internal weakness that’s overly concerning.
However, a correction is clearly at work here and paring losses in your worst performing stocks is a wise move if you haven’t done so already. This will keep your money safe for the next upmove, which could begin at any time.
But how should you prepare for the next leg up? We recommend building a solid watch list of great growth stocks that look poised to break out when the market regains its footing.
We recommend looking for growth stocks with the following criteria:
- Revolutionary products with major benefits. (Green Mountain Coffee Roasters (GMCR) and it’s single-serve Keurig brewers are a good example of this and SodaStream (SODA) could be another.)
- A big idea (related to the above); a stock must have a great story backing it up. Baidu (BIDU) is a good example of this: China has more Internet users than there are people in the U.S. and that number is rising all the time; Baidu has a huge market share in the country’s Internet browsing segment and is well-positioned to build on that growth in the future.
- Strong sales and earnings growth (especially triple-digit sales growth). Good numbers are key to a stock’s success.
- Liquidity, to help you avoid gut-wrenching volatility. Our growth letters recommend looking for stocks that trade at least 500,000 shares per day.
- Good technical performance, like high momentum, which shows you whether the stock is holding up despite the correction. Cabot Top Ten Trader, another growth advisory, is a great source of these types of stocks and often highlights the next big winners long before the rest of Wall Street catches on.
- Strong Relative Performance (RP) because you should buy stocks that are consistently outperforming the market.
And now for a stock that fits the above criteria and would be a great addition to your watch list: SodaStream. Mike Cintolo recently featured it in Cabot Top Ten Trader, writing this:
“SodaStream intrigues us because it shares so many of the criteria that past big market winners have had: Accelerating and rapid sales growth, big earnings growth, huge earnings estimates (up 44% and 38% during the next two years, respectively), a huge-volume clue that tells us institutional investors are getting interested and, most important, a new and potentially revolutionary product that serves a mass market. We’re talking about SodaStream’s soda makers, which help individuals transform ordinary tap water into tasty soda or sparkling water. The business model is superb, with increasing distribution (Bed Bath & Beyond, Macy’s and Williams Sonoma all sell its soda maker) as it penetrates the Americas, which will boost its recurring income over time as it sells more CO2 canisters and refills, more proprietary bottles (which keep carbonated beverages fizzy for two weeks) and, of course, the soda syrup. It’s cheaper, more environmentally friendly and far healthier than picking up pop at the local grocery. There’s always the risk that the soda maker doesn’t catch on, but the numbers tell a different, more bullish story, as 600,000 soda makers were sold in the first quarter alone. We like it.
“SODA’s real fireworks look to have begun three weeks ago when, after a multi-week consolidation in the 40 to 48 range, the stock surged after first quarter earnings blew away expectations; volume was 13 times average as the stock motored 23% higher. Even better, the stock has inched higher since, despite the challenging market environment.”
I very rarely ever drink soda, so I’m certainly not the company’s target market, but I know a lot of people who guzzle it all day long. And for them, this seems like the perfect kitchen gadget. It’s probably not going to be as ubiquitous as Green Mountain’s Keurig machines (those merely replaced existing drip coffee machines, whereas SodaStream is a totally new market), but I do think the company has huge potential. And if the market can get back on track, the stock could work out well as an investment, so keep your eye on it as the weeks and months unfold.
You could jump into SODA here and hope for the best, or you could get Mike Cintolo’s latest recommendation in Cabot Top Ten Trader. A new issue comes out on Monday after the market close and it’s sure to be full of high-potential stocks perfect for your watch list. Learn more!
Now for today’s Contrary Opinion Button. Remember, you can always view all of the buttons by clicking here.
The Future Is Not What It Used To Be
Originally by Paul Valery, who wrote, “The trouble with our times is that the future is not what it used to be.” Of course, it never was. The future is always idealized, while the present is messy. To an investor, the future is characterized by profits galore from his intelligent trades. However, when the future arrives, it’s very likely to hold the same mix of experiences as today: successes and failures, triumphs and regrets.
In this week’s Stock Market Analysis Video, Cabot Market Letter Editor Mike Cintolo says that since the beginning of June, the sellers have clearly been in control of the stock market. The S&P topped on May 1 and the market weakened after that. The real selling didn’t begin until about two weeks ago and the indexes hit new correction lows this week. Mike also discussed how to know when to get back into the market and why you should wait until the major uptrend resumes. Stocks discussed: Green Mountain Coffee Roasters (GMCR), SodaStream (SODA), Lululemon Athletica (LULU), Under Armour (UA) and Netflix (NFLX). Click here to watch the video!
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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 Tim Lutts discussed the relationship between beer brewers and distributors in the U.S. and how it’s helping craft brewers. Tim also recommended a beer stock that’s attractive but thinly traded. Featured stock: Craft Brewers Alliance (HOOK).
On Tuesday, Dick Davis Digest Editor Chloe Lutts discussed current stock market conditions and how to build a watch list of coiled spring stocks–stocks with pent-up buying power that will be unleashed once the weight of the lousy market disapates. She discussed three potential coiled spring stocks for when the market rebounds. Featured stocks: Eastman Chemical (EMN), Ross Stores (ROST) and CARBO Ceramics (CRR).
On Thursday, Cabot China & Emerging Markets Report Editor Paul Goodwin discussed the history and current conditions of the solar industry and why stocks in the sector just can’t seem to get off the ground. Paul did recommend watching one solar stock that has business in other areas as well. Featured stock: GT Solar (SOLR).
Until next time,
Editor of Cabot Wealth Advisory
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