Five Widespread, but Wrong, Ideas
This Market Stinks!
One Bargain Stock with More Growth Ahead ---
Way back in eighth grade, my history teacher, Max Pofcher, called me an iconoclast.
I had to go home to look it up. (Nowadays a kid would just use Google—if he was curious enough to know the meaning of the word.)
But Mr. Pofcher was right. And being an iconoclast—or at least a nonconformist—has paid dividends in my life, not least by allowing me to see the stock market in ways different from the average investor. And when you can act contrary to the herd, you can make a lot of money!
So, without further preamble, I present Five Wrong Ideas, otherwise known as five things most people believe that I don’t.
1. The Fed needs to raise rates to get back to “normal.”
Most people remember that the Fed pushed rates down in the wake of the financial crisis of 2008-2009 as a way to stimulate the economy, and they reason that rates need to get back up to where they were before then, so investors in bonds can once again get a decent return. But people fail to remember that rates were much higher back in the 1980s, and that what we’ve really had is a long downtrend in rates since then. I believe this downtrend is still in effect, and confirmation of that comes from elsewhere in the world; in parts of Europe, rates are now negative, and in China rates are falling fast. To investors asking how to invest for income, I say, “Don’t wait for interest rates to rise; invest in high quality, dividend-paying stocks!”
2. Oil prices are going lower.
“When everyone thinks alike, everyone is likely to be wrong.” is one of my favorite contrarian guidelines. In the case of oil, I’ve seen so many headlines predicting oil at $20 a barrel (Citigroup and Goldman Sachs are among those jumping on this bandwagon) that I tend to think they’re wrong, and that oil will bottom well before then. Yes, the experts at those companies are often skilled at fundamental analysis, but I’m talking psychology here. Plus, ask yourself how good they were at predicting oil’s plunge to $30 a barrel.
3. Donald Trump, if elected, would ruin the country.
4. Bernie Sanders, if elected, would ruin the country.
I have a liberal elderly relative who years ago told me she was afraid that George W. Bush, if elected, would ruin the country. Similarly, I have a conservative elderly relative who years ago told me he was convinced that Barack Obama, if elected, would ruin the country. They were both elected. Yet somehow, our country has continued to grow and great growth companies like Amazon, Buffalo Wild Wings, Chipotle, Disney, Electronic Arts, Facebook, Google, Harman, Illumina, JetBlue, Kors, LinkedIn, Microsoft, Netflix, Omega Healthcare, Pandora, Qualcomm, Restoration Hardware, Solar City, Tesla, Uber, Vantiv, WhiteWave, XPO Logistics, Yelp and Zillow continue to develop products and services that make our world better. Yes, both Trump and Sanders have ideas that are farther out of the mainstream than Bush or Obama ever did, but people forget that with our three-legged government, the president is constrained by both Congress and the Supreme Court.
5. The stock market is going to be a tough place to make money this year.
We’re certainly off to a rough start, but the year is long, the long-term trend remains up, and it’s always darkest just before the dawn. In fact, as I told my Cabot Stock of the Month readers last week, I’m rather excited about adding a new stock to my portfolio tomorrow, given the bargain-hunting opportunities today. If you’d like to get it too, you can sign up here!
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This Market Stinks
The market stinks so far this year. Bearing that in mind, I do have a few words of wisdom.
Never try to catch a falling knife. Let someone else get the uptrend started.
But don’t ignore value. At times like this, there are some great bargains out there, and if their chart patterns are supportive, I say this is a fine time to start getting on board.
Note: This does not mean that you should jump on board all in one day. With the market so volatile, it’s best to take it slow. But if you can get a toehold in a stock now, and you find it a few percent higher in a few weeks, you’ll be off to a good start.
Here’s one to consider.
Adobe Systems (ADBE)
I remember the early days of desktop publishing when pioneers Adobe and Aldus were vying for leadership in the industry. Aldus had PageMaker, which for a time seemed invincible, but Adobe, which owned the PostScript language that PageMaker was based on, eventually acquired Aldus, and since then Adobe has been king of the hill.
And it’s a much bigger hill today, because in addition to building on its leadership in graphic design tools, Adobe has been making waves in the fast-growing digital media and digital marketing industries, with products such Creative Cloud, Document Cloud and Marketing Cloud.
As a result, growth at the company is accelerating! Earnings are expected to grow 33% in 2016 and 34% in 2017!
Much of this, of course, is known to investors. In 2015, their buying pushed the stock up 30%.
But I think there’s a lot more growth ahead for both the company and the stock, and you can see that other investors are expecting it too by the way they’ve resisted selling in recent weeks. In 2016, the stock is down only 8%. That’s excellent for a growth stock!
So, if you’re in the mood for buying, you could simply step up and buy some ADBE on this correction (taking it slow, as I advised).
What I recommend, however, is that you become a regular reader of Cabot’s newest advisory, Smart Investing in Turbulent Times, and get analyst Crista Huff’s updates on the stock every week.
Crista is a fundamental analyst at heart, and she steers her readers to both growth and value stocks. (She spent 13 years at Morgan Stanley, where she was a Vice President, so she knows quality stocks.) But Crista adds a twist; she won’t buy until a stock’s chart is turning for the better!
Using this methodology, Crista added ADBE to her portfolio back in October at 85 as the stock was coming out of the August-September selloff, and her readers are still sitting on profits. To see what she’s recommending now, click here.
Yours in pursuit of wisdom and wealth,
Timothy Lutts
Publisher, Cabot Wealth Advisory
