This webinar was recorded on April 18, 2019
You can download the slides here
.
Crista Huff, Chief Analyst of Cabot Undervalued Stocks Advisor, spoke about how you can combine the best of three famous stock-investing strategies—growth, value and technical analysis—to enhance your portfolio returns and lower your portfolio risk. She shared the names and details of growth and value stocks that are currently poised for gains.
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WEBINAR TRANSCRIPT:
[00:00:05] Hello and welcome to today’s Cabot Wealth Webinar -- Great growth and value stocks that are poised for immediate upside.
[00:00:12] I’m your host Chris Preston chief analyst of the Cabot Wealth Daily advisory and managing editor here at Cabot Wealth Network. With me today is Crista Huff, chief analyst of our Cabot Undervalued Stocks Advisor.
[00:00:26] Today Crista will be sharing her expert advice on how to combine growth, value and technical analysis to not only improve your portfolio returns but also lower your risk. She’ll also give you the names of a few growth and value stocks that appear poised for a big breakouts.
[00:00:41] This is an interactive webinar which means we will be fielding your questions after Crista’s presentation. So if you have a question feel free to ask it at any time and we will try and get to them as many of them as time allows. Once Crista wraps up. And just keep in mind that we cannot offer advice in regards to your own personal investing situation or portfolio.
[00:01:02] We’ll also tell you how to become a Cabot Undervalued Stocks Advisor subscriber with a special discount offer reserved exclusively for today’s listeners. But first let me introduce Crista.
[00:01:13] Prior to arriving at Cabot Wealth Network in 2015 Christy spent over 20 years working for a large global corporations including 13 years at Morgan Stanley where she was a vice president and financial advisor. In 2011 she launched a stock stock market Web site called Goodfellow in which the vast majority of our model portfolios outperformed their comparable U.S. market indices.
[00:01:36] In addition to our investment career Crista has an extensive political background with the GOP. She was elected to be a 2008 delegate to the Republican National Convention has volunteered on many political campaigns and was a groundbreaking leader in Colorado. Most recently she worked as a lobbyist in Washington D.C. promoting policies that benefitU.S. jobs and the economy. Crista is a frequent guest on political and financial radio shows across the US and is in negotiations to be featured on a weekly stock market TV show.
[00:02:06] And since arriving at Cabot Wealth Network in October 2015 Crista has earned her subscribers an average annualized return of eighteen point one percent on all her completed trades. Not bad. So long story short Crista knows what she’s talking about particularly if it comes to growth and value stocks. So I’ll go ahead and step aside so that she can talk. Crista take it away.
[00:02:28] Thank you Chris and thank you everyone for attending. I’m happy to be here today and we’ll talk a little bit about the broader stock market. Before we get to some new investment ideas.
[00:02:42] You all know that last year was a very interesting year in the stock market. It started with a big run up and then it fell and then it recovered and then it fell and then it fell again. So it was a crazy year definitely abnormal.
[00:02:59] Very early in the year MarketWatch called me for what they call some daily color. And I told them that the market was about to drop about 10 percent and that the drop was way overdue. And lo and behold the market peaked to the very next day and then it fell ten point two percent in a breathtaking short amount of time in just 13 days. So that was pretty extreme.
[00:03:25] I went on to tell them, but don’t worry if the market drops because it’ll recover in three to five months. And the reason I said that is because I’ve been investing for 31 years and I’m very familiar with stock market recoveries. So while people like to think about stock market crashes and head for the hills in reality we don’t get crashes we generally just get corrections and a correction is a normal pullback in the stock market. And it’s a little bit scary but they almost always recover within six months. And if you go back any decent length of time you’ll see that after these corrections the market recovers and then starts reaching new highs again.
[00:04:11] So one thing I do try to encourage people to do is to buy low during market corrections. And certainly not to panic and sell during the corrections because that doesn’t do anybody any good.
[00:04:30] December was really ugly and I basically encouraged people to hold onto their stocks and that everything would begin turning around on January 2nd. And that wasn’t rocket science because basically tax loss selling was controlling that situation. And once January second came around, there is no more tax loss selling and all that’s left are buyers or potential buyers and that is what started the market rebound this year. And as you have seen in the stock market averages they’re in various degrees close to the highs that they reached last August September and October. This is what I call a trader’s market.
[00:05:13] When markets rebound the stocks are going to be going up but they’re going to be climbing to to prices where they were trading a few months ago and then they stop. And so what I encourage people to do is pay close attention to those trading ranges because if they are trading oriented they can sell when a stock goes up to a previous range and then they can go buy a different stock. That’s just starting to rise and traders can make a lot of money in in stock market rebounds like we’re experiencing right now.
[00:05:51] Corporate earnings are looking decent. Last year they were phenomenal. So you might hear news headlines that are implying that corporate earnings are not good this year. Well they’re not good compared to last year because last year they were about as high as they’ve ever been. But that doesn’t mean there’s anything wrong with corporate earnings this year. I’m still finding lots of stocks that have double digit earnings growth and that’s really what I focus on.
[00:06:23] So I’m not having trouble finding good stocks to add to the portfolio as time goes by. One interesting anomaly that I’m finding is that energy stocks, all different kinds of energy stocks whether it’s in exploration and production company or an oilfield service company or a refining and marketing company many of them are expected to have very low earnings growth in 20 19 plus or minus 5 percent. And then and then a huge jump in profits in 2020 maybe even 50 percent profit increases or more.
[00:07:02] So I would encourage people to keep energy stocks on your radar because as we get closer to 2020 it’s just going to be more and more apparent to investors that there will be outsized earnings growth amongst energy companies there will be a lot of chatter about that from the media. A lot of attention focused on that sector. And so presumably many of the stocks will react and the share prices will go up. So just to line up your favorites right now and keep a close eye on them. I’m not saying don’t invest in them right now I’m just saying the situation will likely continue getting better.
[00:07:42] Regarding the economy I think that there are two numbers that people should keep an eye on. I know that we are frequently bombarded with information about trade in job numbers and in gross domestic product. And we wonder especially you know if we have a life we have a job we have a family we we don’t want to watch a dozen different economic numbers and trying to figure out how it affects our portfolio so I’m going to give you the two numbers that I think you should use as a rule of thumb.
[00:08:16] The first one is Gross Domestic Product commonly called GDP. And when people talk about you are we going to have a recession. Well the definition of recession is relatively simple. Two successive quarters of falling GDP. Now for Point of reference the last eight quarters GDP rose between one point eight percent and four point two percent. And it does bounce around quite a bit within that within that range but we did not get anything that was remotely similar to falling GDP.
[00:08:50] So as you see headlines from media, from broadcast television if they are talking about ooh, are we having a recession. The answer is. They don’t have a clue. And change the channel because there is no recession in sight. So when there is I’ll be happy to talk about it.
[00:09:11] And when a recession comes it’s a normal thing. There is an economic cycle and recessions are part of that normal economic cycle and a recession does not mean stocks are going to crash. Everything just adjusts slowly because the economy moves slowly in either direction. And we have lots and lots of time to discuss it. And react to it. It won’t slap us upside the head all of a sudden.
[00:09:39] The other number that I would like you to pay attention to is consumer price index. This is the number that everyone talks about when they’re talking about inflation. And inflation becomes an important number because when inflation starts rising that is when the Federal Reserve theoretically increases interest rates.
[00:10:01] If you want to know what interest rates are going to do back up and look and see what the Consumer Price Index is doing. The Federal Reserve likes the consumer price index to rise about 2 percent per year. And our recent 12 month growth rate on the CPI has been one point nine percent. So we’re right there at the target level. And we haven’t been much higher or lower than the target level for a while. And therefore I have every reason to believe that interest rates will probably remain stable in the coming months maybe all year and into next year.
[00:10:38] Of course the CPI could change slowly but it’s not going to change rapidly. So right now I’m not worried about either an in-flight inflation or a recession and I’m not wearing rose colored glasses. If these numbers get out of control I will be very happy to talk to you about them and adjust investment strategy as needed.
[00:11:02] Right now I’m the chief analyst for Cabot Undervalued Stocks Advisor and there are 28 stocks in that stock newsletter divided up into three different portfolios. The growth portfolio features companies which I’d pick based on their strong earnings growth and then the growth and income portfolio represents companies that I’d pick based on both their strong earnings growth and their dividend yield.
[00:11:33] Finally the buy low opportunities portfolio. I do want to pick companies that have strong earnings growth but at that point anything goes. I’m basically looking for companies that where the share prices have been ridiculously depressed and there’s almost nowhere to go but up. Now that’s a little bit of an optimistic phrase because clearly stocks can go anywhere and sometimes they do. But as long as the earnings growth situation is attractive I do have every reason to believe that eventually the stock price will follow suit and it will rise.
[00:12:11] More specifically here’s how I pick the stocks. There are about 1100 stocks that I review on a regular basis sometimes have some of them half a dozen times a year. Others just once every one year or two year depending on what I find when I review them. As I’m going through these eleven hundred stocks I make a list of the ones with the really strong earnings growth. I want to find companies that are expected to see profits earnings per share growth 15 percent or more both this year and next year. When I find those stocks then I look to see if they have a dividend yield. The dividend is not a requirement but it can enhance the total returns. So it’s an important number.
[00:12:57] And then I want to look at the price earnings ratio which is a valuation measure and I want that number to be lower than the earnings growth rate. So if we have an earnings growth rate of 15 percent and the price earnings ratio is 18 I’m not going to give that stock a second look. But if the price earnings ratio is 11 then I will say to myself this is a potential candidate for the portfolio. Now let’s go look at the debt level.
[00:13:29] I learned probably 25 years ago that if you invest in companies that have high debt levels there are a lot of financial problems that could trip them up. Anything from underfunded pensions to an inability to stay current on technology because they literally don’t have the money lying around to to invest. Like when Y2K came along and everybody had to spend a fortune on technology changes. If a company had high debt levels that would have presented a problem to them. So I like to see the long term debt to capitalization ratio at 40 percent or below. Then I feel confident that the company is not going to get into financial trouble.
[00:14:14] When when I find a stock that meets all of those criteria I add it to what I call my waiting in the wings list. I have a list of stocks maybe there are anywhere from 30 to 50 stocks on there at any given point in time. In addition to the stocks that are already in my newsletter and so when I am ready to add a new stock to the newsletter first I look at diversification. I don’t want to get overweighted in any particular sector.
[00:14:44] Right now I’m on the verge of being overweighted in the financial sector so I’m not going to be adding any new financial stocks to the newsletter. In the near future until I remove some of the ones that are already there because I learned long ago that when you get overweighted in your portfolio in any particular sector or industry that’s the time when that sector or industry collapses and it’s just Murphy’s Law. And I am not going to do that is as far as I can help it.
[00:15:14] So right now I will go through that list and I will screen out the financial stocks because I’m already overweighted there but I might look at health care and technology or even energy and and I will pick the one with the best price chart at that point and that’s where technical analysis comes in because if I have a list of 25 attractive companies from a fundamental numerical point of view how do they look on the price chart. In theory I want to buy the one that looks like it’s most likely to go up in the near future.
[00:15:49] Now to a certain extent that’s voodoo right. We’re looking at price charts and they might or might not go up but there are certain patterns that become very recognizable and they call that technical analysis and more often than not those patterns do predict what might happen next with the share price. So I pick the stocks that look like they’re most likely to go up in the near future.
[00:16:15] As Chris pointed out previously, of the stocks that I bought and already sold since I started writing this stock newsletter in October 2015 there have been 80 completed trades and the average annualized return has been eighteen point one one percent. That number was significantly higher prior to the stock market correction in the fourth quarter of 2018 but this is life and the stock market it ebbs and flows and so it ebbed and now hopefully we’re going to flow.
[00:16:47] During that the time period that I have been selecting these stocks seven of them turned out to be takeover stocks. I think that’s probably a slightly higher percentage than maybe the average person’s random 80 stock picks. But I think that has a lot to do with the fact that I focus on strong earnings growth, low valuation and low debt because if you can picture yourself being a big company let’s say you are Apple or Disney and you’re looking to buy a smaller company you want a profitable company. You want a company that doesn’t have a big debt burden because if you buy them you’re taking on their debt burden.
[00:17:28] So it’s just that the numbers that I look for when I buy stocks are often similar to the numbers that big companies look for when they’re buying smaller companies. And that’s how we lucked out and had seven takeover stocks so far and I’m hoping we’ll see more of those in the future.
[00:17:47] In addition to writing the Cabot Undervalued Stocks Advisor I publish an annual list called top 10 stocks to buy and hold this year for 2019 and we’ve published that here at Cabot on January 2nd. And just to let you know through yesterday’s market close that grouping of stocks was up sixteen point six percent year to date not including dividends which could have added maybe another half a percent thus far in the year.
[00:18:16] That’s an excellent number but it’s not a normal number. You know that the market went up a ridiculous amount in the first quarter and that’s why this portfolio is up. You know a very attractive amount but it’s not going to grow 16 percent every quarter. But the bigger point of this annual portfolio is to show people that you do not have to trade a lot to do well with stocks. If you buy a portfolio full of very high quality companies such as Netflix and Microsoft for example and you just hold those stocks you can actually do quite well. So that’s my goal with that annual portfolio.
[00:19:00] Within that portfolio this year the two best performers through April 15th were Sleep Number and XP Semiconductors and the ironic thing is that Sleep Number crashed today. They reported earnings yesterday afternoon and I think earnings came in a tiny fraction below expectations. But the stock had been up so much this year 50 percent or so that all the traders just exited and that’s not unusual with a small cap stock to a large extent. Traders buffet that stock when earnings time comes around and they’ll either push the share price way up or way down.
[00:19:45] So the stock is still up very nicely year to date but anyone who owns it gulped this morning when they watched the market open and we’ll see what happens next. But there wasn’t any bad news per say within the earnings release. And we’ll see what happens.
[00:20:02] In the meantime the slower performers from that portfolio are Mercury General and Designer Brands and the number is still a great of both those companies. So if somebody were looking to buy a low on something that didn’t perform yet this year Designer Brands and Mercury General would be two good choices.
[00:20:22] Now I’ll introduce a couple of stocks ...
[00:21:15] Let’s look at Adobe Systems. When I was going through my waiting in the wings list to find the stocks to recommend today I found three stocks that I like very much and they all start with the letter A and I was laughing because it’s going to look like I got lazy and stopped after I was researching when I got to the letter B and just like blew it off.
[00:21:38] But actually I went through the whole alphabet on my waiting in the wings list and the three great companies I found with the best price charts right now happened to begin with the letter A.
[00:21:47] So the first one is Adobe Systems and you all know Adobe it’s a huge software company. Large cap stock. The amazing thing about Adobe is it’s the gift that keeps on giving. Look at the earnings growth projections for this year and next year 42 percent and 24 percent. Those are phenomenal earnings growth rates. Keeping in mind that I would consider 15 percent to be a really nice number and it’s so unusual for a very large company to keep growing at at excessive rates.
[00:22:21] So Adobe is on a roll.
[00:22:23] This is a stock that anybody could put into their portfolio and go on sabbatical for a year and a half and not have to worry about what’s going to happen to their stock. This company is going to keep growing. It’s a great long term buy and hold stock. But I also think it’ll be good for traders as well. The price chart in a sec.
[00:22:45] Revenue growth looks to be about 29 percent and 18 percent in the next two years. Again those are real strong numbers. I was just reading an analyst report the other day that said the average revenue growth that’s expected within the software. Industry this year is 10 percent. So Adobe’s way ahead of the curve. The share price at about two hundred seventy three dollars, that price is from the other day but I’m sure it didn’t move too much.
[00:23:14] It’s a higher P E stock. So this is for a more experienced growth stock investor. When the fourth quarter market correction came around in 2018 Adobe’s share price fell just like everybody else’s did it fell 25 percent and you need to understand that when you buy stocks like this you can watch your money fall 25 percent in a breathtaking amount of time and you need to be brave enough to hold onto it and possibly brave enough to buy more while it’s low because you have confidence that this is a high quality company and therefore the stock will recover.
[00:23:53] If you feel like you can’t make that decision, like it would be too scary then then I would say you need to be in a less risky stock and I’ll I’ll introduce some of those. But basically if a company has a big dividend in addition to the strong earnings growth that’s going to be a less risky stock than Adobe which does not have any dividend at all.
[00:24:16] Adobe is not in in any kind of cycle of share repurchases the debt levels are moderate. I like the price chart a lot. We’ll take a look at that now. This chart goes back a little over a year and you can see where the stock peaked last fall. Then it had the fourth quarter correction. It’s now back up to where it was in August and September. I think the stock will trade here probably for a brief amount of time and then it’ll start reaching all time highs as it rises above 275 owning a stock when it’s reaching new all time highs is the most bullish time to own a stock.
[00:25:01] And that’s because there is nobody on the entire planet who owned this stock at some point at a higher price and has been disappointed in its performance and is waiting for it to get back up to a certain price so that they can sell every single shareholder at two hundred and seventy five dollars as a profit and they’re happy with the stock and that fuels the upside of the next run up because nobody is unhappy. Nobody’s looking to sell. So I know that there are people who say oh no it’s at an all time high. This is bad. Those people are 100 percent wrong. You basically always want to own stocks that are at all time highs.
[00:25:44] Next, American International Group.
[00:25:47] Many of our investors will recall that this was a key company in the 2008 financial crisis and AIG brought the market down and AIG was a disaster. AIG is no longer that same company. It’s time to take off the dark glasses and put on the rose colored glasses now because things are looking much better. The company had made a lot of transparent formations in the last decade. There’s a new CEO. Who is they. They changed around the product lines. The property and casualty insurance operations are improving.
[00:26:26] The company is aiming for an underwriting profit in 2019. Now insurance companies don’t have to have underwriting profits and they don’t all have that because a lot of them make their money on their actual portfolio investments. But they can make money in both ways and that’s what AIG is aiming for.
[00:26:45] They have a good reserve cushion. They’re expanding their ROE. So a lot of things are going well at AIG and that’s reflected in the earnings per share. They earned a dollar 17 per share last year and expected to earn 4.35 per share this year and then 5.02 next year which represents 15 percent earnings growth next year. So the numbers I like them a lot.
[00:27:13] We have an earnings report coming out on May 6th where they will deliver first quarter results. And if the stock has not risen by then it’s entirely possible that the company will deliver good enough news that the stuff that that would be the catalyst for the next run up. But frankly I think the run up already began and we’ll look at the share price in a sec.
[00:27:36] AIG is a large cap stock. I would like to reiterate that large cap stocks in general are less risky than mid-cap or small cap stocks. That’s one of the reasons that Sleep Number is down what 20 percent today. I think that has a market cap of like one billion dollars American AIG has a 40 billion market cap. Very big difference.
[00:28:01] Safer stock, low price earnings ratio, attractive dividend yield of 2.8 percent. So you get paid while you own it and they are aggressively repurchasing their shares year after year after year.
[00:28:18] Let’s look on the share price that the stock chart so you see the stock falling last fall. This would be a classic stock that I would add to my buying low Opportunities portfolio. I love the way the stock traded sideways in mid-January through mid April and then there was one shake out there in the middle of February. When you see that chart pattern that looks like a real deep V where the stock plummets and rebounds within about two days. That is a very bullish pattern. I realize it looks breathtakingly scary but it’s actually very bullish and it shows the market that there are enough investors who like this stock that if it falls they’re going to jump all over it and buy shares.
[00:29:04] You can see a couple days ago the stock began its run up so we call that a breakout. When it rose above 44 that was a breakout. And what typically happens, and again this is one of the reasons I picked this stock, if you look back last year at the bottom of the trading range was about fifty one right.
[00:29:25] Trading ranges aren’t often this precise so but so this is a wonderful visual. I expect this stock to go back up to 51 which was the bottom of the previous trading range. And then at that point it will rest. There are a lot of people who owned it at 51 and those people would be like Oh thank God my stocks back to 51 I’m going to sell it. And that course is the selling pressure that pushes the share price down for a little while. So in the very short term I think you could see AIG go to 51. And if you’re willing to not be a trader but hold it longer term I think in the not too distant future it’ll break past 51 and keep climbing again.
[00:30:07] The next stock I want to talk about is Access Capital Holdings another insurance and reinsurance company. A lot of property and casualty business.
[00:30:17] What’s happening in that industry is that the industry had not really raised insurance rates very much for quite a few years and then they all sort of decided OK. 2018 came along let’s start raising rates. They’re still raising rates. And that’s why we’re getting these big jumps in profit year over year after quite a few years. Let’s say it’s more stagnant profits Access Capital Holdings has strong excess reserves. The pricing trends are continuing into 2019.
[00:30:51] The CEO is focused specifically on profitability. Sometimes you get a company that’s focused more on revenue growth but this one is actually focused on profitability and you can go to the Web site and listen to their most recent presentation where the CEO is talking to analysts and those are actually excellent presentations where you get a really good idea of how the company is doing and where they’re going.
[00:31:17] Access Capital acquired a company called Novea Group of a little while back and they have been achieving their cost synergies ahead of schedule they’re very happy with that acquisition. They are working specifically to improve customer service make the customer experience more pleasant so that people are more likely to buy their product. They are improving the quality of their investment portfolio and they are working on controlling costs which they’ve been successfully doing with their recent acquisition.
[00:31:52] Big profit surges are happening this year and next year. This is a mid-cap stock. So it’ll be more volatile than a large cap stock and probably less volatile than a stock like Sleep Number. It’s got a low price earnings ratio indicating a low valuation nice very attractive dividend. I love all the numbers on Access Capital Holdings and they’ve also been aggressively repurchase stock. 20 percent of their stock was repurchased in the last four years.
[00:32:26] Looking at the price chart the stock has been trading sideways for 13 months. It did have that brief downturn in December but the downturn it actually wasn’t nearly as bad as most stocks during the fourth quarter it held up pretty well in the October downturn. And then the December downturn it would. It gave up the ghost and then it started bouncing back even before January so there’s a lot of price support in access more import there are many many stocks that I follow that are just now beginning to break out of trading ranges and I have a sense that Access is about to do that as well. If I’m wrong it’s just going to keep trading in the upper 50s for a little while but I do think it’s about to rise.
[00:33:17] And you get paid to wait. You get the two point eight percent dividend. You get a healthy growing company and let’s see did they have an earnings report coming up. I think they do and I think I forgot to put it on the side but it’s easy enough to look that up for yourself because first quarter reports you’re coming out for everybody.
[00:33:39] All right. So that’s everything I had to say about the three stocks that I was introducing today. And Chris what else would you like to add.
[00:33:46] Yeah I’ll give you a minute to catch your breath before we started some questions. In the meantime let me just tell everyone how you can sign up for Krista’s advisory if you like where you’ve heard from Crista so far today and our interested in what other stocks she is currently recommending you can subscribe to her cabin undervalued stocks advisor by going to CabotWealth.com/undervalued-stocks-webinar. We’ll send all this to you in an email eventually but so they’ll make it a little less confusing.
[00:34:22] For today’s listeners only we’re offering new subscribers a starter subscription to Cabot Undervalued Stocks Advisor for just one dollar for the first month so you can try it out for us want to just one dollar and what you get our regular growth and value stock picks weekly updates on all the stocks in Crista’s portfolio and frequent special bulletins on news affecting those stocks all straight to your e-mail inbox.
[00:34:48] And again Crista’s subscribers have been treated to an average annual return of eighteen point one percent on all closed trades. If those sound like the kinds of market beating returns you’re looking for I highly recommend you subscribe to Crista’s advisory now at today’s very special price, by going to Cabotwealth.com/undervalued-stocks-webinar.
[00:35:13] Now let’s get to your questions.
[00:35:27] First question What is your opinion Crista about the recent downturn in health care stocks. Does that make them a buy or sell OK.
[00:35:39] So we had a big drop in health care stocks yesterday that the media tied to Bernie Sanders proposal in his presidential candidacy for Medicare for all. The longer the idea of Medicare for All makes news headlines the longer it’s going to continue to impact health care stocks.
[00:36:06] One important point is people’s perceptions about stocks often takeover versus the realities. So for example there are two pharmaceutical stocks in my undervalued stocks advisor portfolios and those are Alexion Pharmaceuticals and Superness Pharmaceuticals and they are very successful companies. However their share prices went down just as if they had been terrible companies right. Because people are going to make decisions in the near term based on any fear that’s being generated by Bernie Sanders proposal.
[00:36:48] The sooner that his proposal is no longer highlighted in the media the sooner the cloud will. Will be removed over health care stocks. So let’s look at the other side of the equation what if he becomes the Democratic candidate and he’s talking about Medicare for All. All the way up to the presidential election. That would be bad news for health care stocks. So I’m not ready to tell people to buy low or to panic and sell. But I will continue to talk about this in my weekly updates and I will continue to monitor the political news thanks for the question.
[00:37:32] Here’s one from James. James asks What is your sell discipline. Is it based on fundamentals or do you see something technical in the charts.
[00:37:46] It is mostly based on fundamentals and there are different pieces of the equation that could trigger a sell decision in my mind.
[00:37:56] First of all if earnings if the earnings projections start to deteriorate and that happened recently with WesTrac I sold that company stock on Tuesday morning because the earnings outlook in January had projected twelve point five percent earnings per share growth this year and that’s it. That’s a good number. And they also have like a 4 percent dividend. So everything looked good and then the twelve point five percent number deteriorated slowly week by week.
[00:38:29] And if it if it gets down to a point where it’s like 7 percent or so.
[00:38:38] I’m very likely to make a sell decision. It’s going to depend a little bit on what the what the following years earnings projection looks like. But I don’t really want to see that number get below 5 percent and that’s just one little piece of the potential sell equation. If if the stock goes up a lot and the P E gets out of control I might sell. If there’s a very distinct strict trading range which there often is on the stocks in my buy-low opportunities portfolio I might sell as the stock goes up and retrace as a previous trading range.
[00:39:13] So there there’s always a specific reason but it’s never it’s never random like Oh No the stock fell let’s sell it. These are mostly value stocks and value stocks. You know the general definition is this is a stock that’s not trading near its proper value. And we’re going to take advantage of it while it’s down. Does it sometimes fall farther. Yes. So that’s why I monitor all of the numbers on these stocks and report on them every single week. So if the numbers start to get weak I pull the plug. But if the stock simply falls for silly reasons I do not pull the plug and I will let people know if it looks wise to buy more.
[00:39:56] Here’s one from Ken. Ken says the Mueller report appears to be impacting share prices lower. Do you have a comment on that?
[00:40:09] That did not occur to me let me look really quick and see what the market’s doing. No I don’t think the Mueller Report is having any effect at all. The S&P is up a quarter of a percent right now, the Dow is up more. The Nasdaq is up less.
[00:40:25] It looks so it looks normal to me. I would not be quick to tie any of this Mueller investigation stuff to the stock market. The concept of tying the Mueller report to the stock returns has literally not crossed my path and so I don’t think it’s going to.
[00:40:51] Question from Rick while you’re looking in the A’s, is ANTM starting to show on your radar.
[00:41:04] OK can you do me a favor and send that question to me. Is that Anthem? Send that question to me on email please. And I will be happy to give you a pretty quick answer. I remember looking at that stock the other day and I will have a quick answer once I can really now play on my computer.
[00:41:29] Here’s a question from Jim - is is there a minimum market cap of stocks in your portfolio.
[00:41:40] No. There is even a microcap stock in there, Universal Electronics.
[00:41:46] I have this love hate relationship with cutting small market cap stocks in the portfolio because they have incredible earnings growth potential. Right. But there is never any news stories on them and people get so frustrated and owning them because the stock might move twice during the entire year and the rest of the time everybody’s just twiddling their thumbs wondering what the heck’s going on with universal electronics.
[00:42:11] So I know and the other and the other cool thing about them is that when you have a really healthy, growing tiny company these these companies become takeover targets. So I love owning them but I hate holding everybody’s hand and encouraging them to wait for something good to happen.
[00:42:31] So my general suggestion regarding managing your own portfolios when I talk about diversification among sectors I also shoot for diversification among market cap sizes so that if small cap stocks are in favor or out of favor they’re not weighing too heavily either way on your portfolio.
[00:42:54] So I would just say keep the keep the tiny cap stocks at like 10 percent of your total portfolio but not much more than that unless you have a real strong stomach for volatility good question.
[00:43:11] Next question - At age 73 and retired, what is your recommendation for my stock allocation.
[00:43:19] That’s going to depend a lot on the amount of your wealth your goal with the money and your risk tolerance. So that’s a good question for your financial adviser.
[00:43:30] But if you love owning stocks and you have enough money to live on and you have enough money to live on if we get a big stock market correction tomorrow then keep buying and owning stocks. And if you don’t have enough money to really fulfill your financial goals including the dollar amounts that you might want to leave to heirs then pare back the stocks and go heavily into something that’s more safe.
[00:44:02] Question from a different James. Do you have any thoughts on Square (SQ) stock?
[00:44:11] I do not. If if you send me a specific question like What do you actually want to know about it do you own it and want to know the trading range do you. Are you curious if the earnings growth would fit my parameters. So if you send me a more specific question I’ll be happy to look that up.
[00:44:36] Ken asks - So you haven’t gotten into cannabis yet?
[00:44:46] I won’t be heading into cannabis stocks largely because these are newer companies more unproven. So if the cannabis stock crosses my path one day that fits all of my investment parameters and I feel confident that the management team has been doing this for a long time and etc I will consider it. But generally if there is a more of a new startup kind of an industry there’s just too much about it that could go wrong. Even legislation and such. So at this point there are no cannabis stocks that have met my investment criteria so there are none on my list.
[00:45:32] And by the way we actually have a marijuana/cannabis specific service here at Cabot Wealth we launched about a year and a half ago half ago that Tim Lutts our CEO runs called Cabot Marijuana Investor. So if you check on the Cabotwealth.com web site and go to advisories you can find out information about that advisory there it’s doing quite well. And it’s all marijuana and cannabis stocks.
[00:46:06] A question from Paul. Do you expect Disney to continue to grow and be a value stock worth investing in.
[00:46:14] Disney has not landed on my list for several years. There’s always something about it that where the numbers just don’t meet my criteria. So if you send me an email I will look up the numbers and let you know if there’s a specific thing about them that’s not good enough or if the situation is changing and they’re starting to become more attractive. I can’t recall really if it was a debt issue or if the earnings growth just wasn’t good enough. And I have made lots of money on Disney in the past so I’ll be happy to tell you that it looks fantastic if it does.
[00:46:49] And sometimes by the way someone will ask me about a stock and the numbers might look great for me but the chart will look fantastic and so I’ll just tell them yeah, keep the stock and you know use a stop loss to protect your downside, but this stock looks like it’s going up another 18 percent potentially in the next couple of months.
[00:47:09] So you know I’m not like a party pooper when it comes to stocks that don’t meet my criteria. If there’s a way to make money on something I’d be happy to discuss it with someone. Yeah.
[00:47:21] And going back to the cannabis question and Chris was mentioning Tim Lutts Cabot Marijuana Investor. I think you’d be hard pressed to find somebody who knows more about cannabis stocks than Tim Lutts. And if you’re remotely interested in cannabis stocks you would absolutely want to subscribe to his newsletter.
[00:47:52] Here’s one about Qualcomm yesterday and its new deal with Apple. What are your thoughts on sort of the fallout from that?
[00:48:05] Let’s see. I wrote that article that got published today about Qualcomm so it’s on the Cabot Web site. And if you if you have trouble finding it just click on Daily. It’s up in the toolbar and I think you’ll find it.
[00:48:20] Qualcomm was the poster child for the book of Job. In recent years just suffering suffering suffering all these mergers and acquisitions that kept not getting government approval and the stock kept falling back down. And they couldn’t get anything going and then they were having all these problems with litigation with Apple not only in U.S. courts but in courts all over the world.
[00:48:46] And then suddenly on Tuesday Apple and Qualcomm shook hands outside of the federal courthouse and decided to drop all of their litigation and will work together. It was was like it was wonderful financial news.
[00:49:02] So Qualcomm which had been expected to grow profits about 4 percent this year which was you know completely ho hum suddenly their entire future looks different now that the clouds have cleared the profit that they’re going to make from being the 5G modem chip supplier to Apple is going to be a huge increase in the profits versus the previous projections. They’re also getting an undisclosed cash payment from Apple. Lord only knows how big that cash payment is.
[00:49:37] The only thing about Qualcomm that has a red flag to me is the long term debt ratio was 77 percent in the most recent quarter. And that’s pretty darn high. However how much money are they getting from Apple. Will they use it to pay down the debt. How much money will they get from royalties and products. So the stock rose tremendously this week based on the litigation disappearing.
[00:50:10] If I were interested in Qualcomm I would wait for a pullback in the share price which usually happens when the stock goes up a ridiculous amount. It usually comes back down relatively quickly and rests for a while before the run up begins in earnest. So I would look to be buying that in the low 70s in the near future.
[00:50:31] However the last thing I want to say about that is there’s no big sin in buying it at the current price if you have a several year investment horizon I think you’re going to make money. It’s just that I’m always trying to like optimize the price that I can buy something so like 72 would be an awesome price on Qualcomm.
[00:50:53] Last question. What are your thoughts on what types of financials to invest in or what’s what. What niche within the financials are the best head of investment right now.
[00:51:09] Absolutely the property and casualty insurance companies. It’s no coincidence the two of them showed up on my waiting in the wings list and I offered those to you today. So I would go for AIG and Access Capital Holdings above any other kind of bank, insurance, brokerage firm, et cetera. So lots of the other financial types of companies are doing well but property casualty stocks. I think they’re in the sweet spot right now. I think you’re going to make money in the near term on those.
[00:51:45] All right. Well thanks. Thanks to everyone for all the good questions. Thank you Crista.
[00:51:53] And we appreciate everyone joining us today and we will be back next month on May 20 3rd at 2:00p.m. Eastern Time with another webinar.
[00:52:06] It’s our next webinar this time featuring our options trading expert Jacob Mintz and you can sign up now for that free webinar. It’s titled Seven tips for making money trading options plus two hot trades now. Not now but in a month.
[00:52:24] But by going to Cabotwealth.com/webinars. Until then for Crista Huff an entire Cabot Wealth Network team. I’m Chris Preston. Thanks again for joining us.