A Tricky Stock Market

Do Your Homework

A Potential Leader

Without Contraries Is No Progression

Stock Market Video

Halloween was Monday, but it seems like the stock market has been playing tricks on investors all year. After the market’s meteoric rise last fall and early in 2011, it got tripped up in March. The market made an effort to get going again in the spring only to be dragged lower in the summer and pulled violently down in August. Since then, the market has chopped around wildly, creating whipsaws in market timing systems and leaving investors’ heads spinning.

Just this week, the market appeared to give a clear signal which direction it was headed (up), when more bad news out of Europe crushed the indexes on Tuesday. The market’s action has left many investors confused and wondering what to do next.

My advice? Study up!

This is the perfect time to read an investing book, print out your top investing rules and study them or review past trades to see what you could have done better. Instead of sitting on your hands, waiting for the market to settle down, you could be improving your investing knowledge to prepare you to handle whatever the market throws your way.

Think of it as training, like sports teams do in the off-season or runners do for races.

Right now, I’m training for a half-marathon (which, to me, isn’t half of anything!) that I’ll run next weekend. I’ve put in many hours pounding the pavement in sun and heat as well as rain and cold. Training in all weather conditions and all circumstances helps prepare me for what I’ll encounter on race day, which could be pretty much anything, as evidenced by our freak early season snowstorm in New England last weekend!

The race may only last a little while, but it’s a culmination of all of the time and effort I’ve put in during the months leading up to it.

This is also true of investing. You might not make that many trades every month or even every year, but all of the work you do in the “off-season” will pay off handsomely. If you’ve done your homework!

So pick up your favorite investing book or visit our website to read up on how to become a better investor. We have full archives of all previously published Cabot Wealth Advisory issues as well as a thorough education section that can help anyone–from the novice to the professional–succeed in the market. If you do your homework, you’ll be rewarded when it’s time to invest aggressively again. Your portfolio will thank you.

The weather has gotten colder here in Massachusetts lately, so I’ve invested in some new running clothes to stay warm during training. I’ve been reading about Under Armour’s (UA) Charged Cotton for months in several of our newsletters and decided to try it for myself. I’ve always had a fondness for the company’s original compression sportswear, so I had high hopes for this newer product.

And it has lived up to my expectations! It dries significantly faster than regular cotton and is far softer as well, even with repeated washings. This innovative product has made Under Armour an even more dominating player in the world of fitness attire. Here’s what Cabot Top Ten Trader Editor Mike Cintolo had to say about the stock recently in that newsletter:

“Under Armour is acting like one of the leaders of the new market advance, as investors have an appetite for retail stocks in general, especially those with a unique brand and powerful sales and earnings growth. On that front, Under Armour reported another stellar quarter last week; revenues rose a huge 42%, matching the fastest growth rate in years; apparel revenue was up 31% and, impressively, direct-to-consumer revenue (mostly online sales), which accounted for one-fifth of all sales, was up 73%. Earnings rose a good-not-great 29%, which was ahead of estimates, though it still leaves open the worries of profit margin deterioration as input costs surge. Those worries briefly knocked the stock lower after the report, but the stock’s huge upmove by week’s end tells us that investors are looking at the big picture–while the stock sports a premium valuation (51 times trailing earnings, 37 times next year’s estimate), the firm’s consistent, rapid growth, increasing market share and stream of new products point toward Under Armour getting much, much bigger in the years ahead. If management continues to make the right moves, this is the type of name that could be a core holding for many institutional investors.

“After plunging into August, UA enjoyed one of the sharpest rebounds during the market’s failed September rally, which was a clue that demand for shares was still strong. After consolidating for a few weeks in the 70 to 80 range, the stock soared to new highs last week on its heaviest weekly volume in years, clearing a 13-week structure. This early in a new advance, we wouldn’t expect a big pullback from a new leader, so if you don’t own any, we advise starting a small position on a dip of two or three points, with a 10% or so loss limit.”

With the market still chopping around, you could buy UA here and hope for the best, or you could get Mike’s latest recommendation on this and other leading stocks in Cabot Top Ten Trader. It’s THE place to read about the leaders of the next market advance before most investors are aware of their stories. Click here to try it today!

Here’s this week’s Contrary Opinion Button. Remember, you can always view all of the buttons by clicking here.

Without Contraries Is No Progression

The full quote, by William Blake, goes, “Without contraries is no progression. Attraction and repulsion, reason and energy, love and hate, are necessary to human existence.” In investing, this does not mean that for every winner there’s a loser. That’s only true in zero-sum games. In investing, where the long-term trend is upward, everyone can win (theoretically) in the long run. Where the saying does apply in investing is the simple fact that for every buyer, there’s a seller. And that’s worth thinking about before you make a trade. Ask yourself what the party on the other side of the trade might be thinking.

In this week’s Stock Market Video, Cabot Market Letter Editor Mike Cintolo says that there’s no doubt that the market remains very news driven and volatile. But he thinks that the worst is likely behind us and if the troubles in Europe can be resolved, many stocks seem to want to move higher. Mike discusses several factors that lead him to be optimistic about the market going forward. Stocks discussed: Intuitive Surgical (ISRG), Nuance Communications (NUAN), Buffalo Wild Wings (BWLD), Tesla Motors (TSLA), Under Armour (UA), Estee Lauder (EL) and SolarWinds (SWI).

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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 10/31/11 – Is Another U.S. Debt Downgrade on the Horizon?

On Monday, Cabot Options Trader Editor Rick Pendergraft discussed what happened when Standard & Poor’s downgraded U.S. debt during the summer and what could happen if U.S. debt were downgraded again–an event Rick wouldn’t find surprising. He recommended an investment that could help you profit should this come to pass. Featured investment: ProShares UltraShort 20+ Year Treasury Fund (TBT).

Cabot Wealth Advisory 11/1/11 – The Company is Not the Stock

On Tuesday, Dick Davis Digests Editor Chloe Lutts discussed why it’s important to separate the company from the stock, using Netflix as a recent example. Chloe recommended a stock that was recently featured as the Spotlight Investment in Dick Davis Investment Digest. Featured stocks: Netflix (NFLX) and Activision Blizzard (ATVI).

Cabot Wealth Advisory 11/3/11 – The Market Wants to Take Your Money

On Tuesday, Cabot China & Emerging Markets Editor Paul Goodwin discussed cynicism versus skepticism in the stock market and why the former can be dangerous, while the latter can be helpful. Paul also discussed changes that will signal the end of the era of mystique surrounding numbered Swiss bank accounts. Paul also featured two emerging leaders: China Mobile (CHL) and Brazil Foods (BRFS).

Until next time,

Elyse Andrews
Editor of Cabot Wealth Advisory

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