Timothy LuttsPresident, Chief Investment Strategist and Editor of Cabot Stock of the Month
Timothy Lutts heads one of America’s most respected independent investment advisory services, publishing eight newsletters to over 100,000 subscribers around the world. He leads a dedicated team of professionals who serve individual investors with high-quality investment advice based on time-tested Cabot systems. Timothy also edits
Cabot Stock of the Month Report.
Under his leadership, Cabot advisories have been honored numerous times by Timer Digest, Hulbert Financial Digest and CBS MarketWatch as the top investment newsletters in the industry. In 2007, Cabot was the only publisher with two investment advisories, Cabot Market Letter and Cabot China & Emerging Markets Report, ranked among the top 10 investment newsletters by Hulbert.
After working in this business for more than 22 years, Timothy says, "There are 10 things I know. The first five are directly about investing, the second five, indirectly."
1. The business of investing can provide great rewards to those who work at it and are willing to learn. Those who refuse to learn will lose money.
2. To succeed as an investor in growth stocks, it’s best to buy when upside potential dwarfs downside potential, to cut losses short, and to let winners run.
3. To succeed as an investor in value stocks, it’s best to buy low and hold patiently, until the stock is fully valued.
4. Your greatest enemies are your own emotions and the blow-dried fellow who reads the evening news with a heartfelt–but undeserved–sense of urgency. Try to ignore them both.
5. For over two centuries, the long trend of the markets has been up, reflecting the growth of asset values, and I recommend that you invest in synch with that trend. Your greatest ally is time.
6. As to the world, globalization is a powerful trend that is positive for the world as a whole. Embrace it, looking forward, not backward.
7. However…consider the idea that the underappreciated risks arising from the increasing inability of fossil fuels to fill growing market demands are greater than the well-publicized risks deriving from global warning. Invest accordingly.
8. And…consider the idea that the longer our elected representatives in Congress sanction the increasing growth of our national debt, the greater the pain when we have to pay that debt, while providing Social Security and Medicare for an exploding population of old folks (myself included). Invest accordingly.
9. In the meantime, keep on learning. Not only will it help you become a better investor, it will keep you young.
10. Finally, have faith in the ability of intelligent, innovative men and women to adapt, as they always have, and to solve the problems of the future in ways that are unimaginable to people of today. Invest in these people when you can.”
Timothy has appeared on numerous podiums as an investing expert, including Bloomberg TV and the World Money Show, led Investor's Business Daily discussion groups and been interviewed by CBS MarketWatch, TopStockAnalysts.com, VoiceAmerica.com and numerous other business news organizations.
Publications
Each month, Timothy Lutts selects Cabot’s most attractive stock recommendation for current market conditions from the portfolios of other Cabot newsletters: Cabot Market Letter, Cabot Top Ten Report, China & Emerging Markets Report, Cabot Benjamin Graham Value Letter and Cabot Green Investor.
A great introduction to the range of Cabot investment strategies, Cabot Stock of the Month Report investors build a diversified portfolio of growth stocks, momentum stocks, international stocks, and value stocks.
More on Cabot Stock of the Month ReportCabot EditorsCabot HomeCabot Wealth Advisories
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05/08/08Today I want to review the expansion and subsequent shrinking of the Internet stock universe, and then relate that to the growth of today's alternative energy stocks. The best time to invest in a sector, such as Alternative Energy, is when it is uncategorized and indistinct.
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04/21/08Leading stocks have been breaking out to new highs and recently begun uptrends are looking more and more sustainable, indicating that the worst is most likely behind us.
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04/14/08Clean Harbors (CLHB) is a Green stock that is benefiting from the growing demand for a cleaner planet.
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04/12/08We got a great response to Wednesday's Cabot Wealth Advisory about Peak Oil, and many of the responses are reproduced in today's issue.
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04/07/08It's absolutely fascinating to see stocks in both the oil and gas and the solar power industries leading the market higher in recent days. So where to invest?
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03/31/08Last year one of the market's biggest winners was Crocs (CROX). Most people just call them plastic, but we made a lot of money in the stock, and therein lies an excellent opportunity for a lesson in Romance, Transition and Reality.
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03/24/08Microsoft (MSFT) bid $45 billion to buy Yahoo! (YHOO) back on February 1. My investment perspective on these companies is two-fold. First, every investor in America knows these companies. It's going to be very hard to beat the market by investing in them. Second, those companies are going down the same road traveled by IBM decades ago.
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03/17/08I recently visited Ruth's Chris steakhouse in Boston for a wonderful meal. Despite the stigma of being a chain, every meal has been absolutely terrific. Ruth's Chris (RUTH) just came public in 2005, but has since slid from the mid 20s to 6 1/2. Revenues have grown fairly consistently, but earnings were cut in half during the fourth quarter, and projected to shrink some more this year. The stock just hit a new low today! Thus, I think it's a good idea for any steak lover to visit one of the premier steakhouses in your area every couple of months. It's a real treat! But when it comes to investing, the message is clear: Enjoy the steak, but avoid the stocks.
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03/03/08In 1931, Humphrey Neill, who later became famous as the Vermont Ruminator, wrote a book called "Tape Reading and Market Tactics - The Three Steps to Successful Stock Trading." What are the Mr. Neill's three steps to successful stock trading? The first step is familiarizing yourself with the methods of the institutions that move the market. The second step is learning how to interpret the actions of both these groups and the investing public. The third step (and hardest of all) is achieving mastery of yourself; of the "temperament, emotions, and the other variables that go to make up human nature."
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02/28/08We appear to be at a major turning point, a changing of the guard, if you will, and if you don't heed the market's message, you risk discovering that it has taken some of your hard-earned money. The fact is, most leaders of the last bull market are toast. Google is 37% off its high. Apple is down 37%, too. So what's working? Two sectors.
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02/18/08At Cabot we've learned that it takes excellent, innovative management to steer a fast-growing company down the highway of success. Contrarily, bad management can wreck even the most promising company. As might be the case with one carbon fiber company Cabot’s been watching for more than a decade.
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02/14/08William Arthur Ward (1921-1994) said it like this: "The pessimist complains about the wind; the optimist expects it to change; the realist adjusts the sails." My thesis is simple: that the market is always changing, and that to succeed as an investor, you've got to change with it. Well, I think it's time to adjust the sails, because as the market works to build a base here, the strongest stocks in the market are coal stocks...and never before in my career have coal stocks been attractive investments.
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02/07/08If I try to think rationally about this problem, here's what I get. Debt is bad; equity is good. Consumers and businesses are already working to reduce their debt loads, and as they continue, they will develop stronger balance sheets and greater financial health, which is a good thing. (One aspect of this that is often forgotten is that this debt shrinkage is right on schedule for aging baby-boomers.)
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02/01/08Microsoft wants to pay $44 billion - perhaps the largest technology purchase ever - to buy Yahoo! Why? To compete with Google! But does it make sense? Well, from a big-picture point of view, anything that can thwart Google's dominance of Internet search and advertising probably makes sense for Microsoft, and if they've got the cash, there are worse places to spend it. But does this make for an attractive investment opportunity? Do you want to own a piece of Microsoft/Yahoo!, recognizing that the Microsoft part is eight times the size of the Yahoo! part?
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01/28/08The industry is the realm of genetic medicine and the stock is Illumina (ILMN), currently trading in the low-60s. Illumina is one of two major public companies that make tools used for genetic medicine. The other is Affymetrix (AFFX). To say that they've been competitive would be polite; there have been lawsuits and countersuits about intellectual property in recent years.
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01/21/08When we're in a strong bull market, it's like driving down the highway on a clear summer day. Visibility is unlimited and your tires grip as well as they ever will. You can go pedal to the metal and rack up the miles - and the profits - quickly. But a bear market, such as we're in today, is more like the weather I drove in Friday. It's far less tolerant of aggressive behavior. The effects of your mistakes are magnified. And if you make enough wrong decisions, it can ruin you.
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01/17/08Eventually, when real estate prices fall low enough, the patient value-oriented souls who've been waiting for bargains will come out of the woodwork and start buying. They'll buy individual houses, apartment buildings, entire condominium projects and more. Downtrends will end. The recession will end. And the U.S. of A. will return to its pattern of slow growth. But should you wait until then before you invest? No, as I explain in the next section.
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01/10/08My pick, by the way, is New Oriental Education (EDU), which is thriving by teaching English to Chinese students of all ages, and also teaching test preparation courses. I like it because I think the growth of China will continue at a rapid rate and because I value education highly. Also, the company is fast-growing and very profitable; in the third quarter, revenues grew 50% from the year before while the after-tax profit margin was 43.9% (there's a strong seasonal component here). And finally, the chart looks good.
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01/03/08So which book leads to the investment idea, the book by the dreamers or the book about the doer? There's no surprise here; it's Carnegie, the doer. Because today's idea is about steel and iron ore, once again in great demand by the world. For Carnegie, demand came from the expansion of the American railroad system. For this company, demand comes from the global building boom, particularly in Asia.
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12/31/07Now, this would be a natural place to write about a solar power stock, but I've done enough of that in recent issues. Instead, I want to write about a nifty little Brazilian company. And here's why. In my mind, the world's stock markets are linked by conduits that channel money this way and that, every minute of every day, always reacting to the latest news and the resulting changes in perception.
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12/22/07The best way to make big money in growth stocks is to invest in fast-growing companies in fast-growing industries, and ride the major trends for as long as they remain up. In 2007, the biggest trend - still ongoing - was the rise in solar power stocks. And next year? Here are my five best guesses for the trends that will reward investors in 2008.
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12/17/07If I could buy any insurance company, I'd buy Geico. Unfortunately, it's already owned by Warren Buffett's Berkshire Hathaway. My second choice? China Life Insurance (LFC). China Life was a government entity until it was sold to the public in December 2003, in the biggest Chinese IPO to date.
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12/13/07Why would you want to invest in a hard disk maker? Because historically, these companies have provided many opportunities to make big money quickly, and it looks like we're entering one of those periods today.
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12/08/07Today, one investment strategy that's struggling a bit is the value strategy. While growth stocks in general have had a great year, and international investments have had a great year, thanks in part to the falling dollar, value investing strategies have lagged.
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12/06/07For almost everything we buy in life, price matters. From gasoline to automobiles, cheeseburgers to chateaubriand, we've learned that the lower the price, the better the deal.
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11/29/07Now, unlike Wellcare Group, Crocs still has an excellent growth business, and we still have high expectations for the company. But we don't confuse the stock with the company, and we never argue with the stock. CROX, like WCG, is heavily damaged. Every rally from here will be met with selling pressures from investors who bought higher who will now be content to "get out even." And thus it's highly unlikely that this stock will return to its winning ways in the near term. So we say sell.
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11/24/07Ideally, you want to invest in industries where the dominant factors are positive, where booming demand for products and services means revenue growth is rapid and profit margins are high. Trouble is, in the current market climate, the best growth stocks, which have enjoyed great advances earlier this year, are in retreat. Buying them is a high-risk proposition. But there is one exception, and it's interesting enough to discuss here.
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11/15/07And now one brief recommendation. It's a gold stock, Freeport McMoRan (FCX). Freeport owns the Grasberg open pit mine in Indonesia, which is not only the world's richest gold mine but also the world's third-largest copper mine. And it acquired Phelps Dodge earlier this year, making it the largest publicly traded copper company in the world.
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11/12/07Back at the beginning of this email, I mentioned the American Association of Individual Investors (AAII). I'm a life member; they made me an offer I couldn't refuse about a decade ago, and I expect to come out ahead on the deal. Anyway, AAII regularly tests investing systems to see which ones perform best, and over the long run, two systems stand head-and-shoulders above the rest. The first is the CANSLIM approach advocated by Investor's Business Daily (IBD). The second is Martin Zweig's system.
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11/08/07Legalizing marijuana would not only create a great new source of revenue, it would also bring quality control to the industry, create thousands of new legal jobs, and - best of all - stop the practice of imprisoning people who were only working to make a buck by filling the market's demand ... which could save us many billions of dollars a year, reduce ancillary violent crime, return people to the labor force and make families whole again.
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11/01/07It's the largest provider of cell phone service in Turkey, with a 60% market share, and it's named, appropriately enough, Turkcell. The firm's ADRs (American Depositary Receipts) trade on the NYSE under the symbol TKC. With 32 million subscribers, Turkcell is the third-largest provider of GSM service in Europe. It has $5 billion in annual revenues; it's expected to grow earnings 42% this year and 21% in 2008; and it pays an annual dividend of 3.8%!
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10/29/07For a long time, I've had a note to myself saying I should write about witch-hunts. And now, as the clock ticks toward Halloween, is the perfect time to do so. My status as a native and lifelong resident of Salem, Massachusetts means I know a fair amount about the historical kind, and my decades observing and analyzing the behavior of investors, who can act rational as individuals but who combine to form irrational crowds, means I've experienced many of the modern kind.
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10/25/07Of course, six months is far too short a period in which to judge a value-oriented investment. More important, Warren Buffett, as far as we know, never paid more than 82 for his shares. Those folks who deluded themselves into thinking they were following the master when they were buying above 90 were only getting half the equation right. They forgot the importance of price.
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10/18/07First, Baidu (BIDU) is the Chinese equivalent of Google. Both companies get 99% of their revenue by presenting ads to Internet users. But Baidu is just 1% of the size of Google, as measured by revenues, and 5% the size as measured by market capitalization. And it's growing twice as fast as Google. Furthermore, Baidu's market penetration is far less than Google's and it's addressing a far larger population, so its growth prospects are substantially greater.
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10/15/07So on to the stock. To refresh your memory, Force Protection is a South Carolina company with $340 million in annual sales that makes trucks for the military ... trucks that resist the force of various explosive devices. The majority of these vehicles are bought by the U.S. government, and they've proven quite valuable in Iraq. Some have been sold to Canada. And last Monday the British government, which has already bought 100, ordered 140 more.
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10/11/07Trends are up, but overextended, suggesting that a normal correction is likely. Our Hi-Lo Alert, which measures the number of Dow stocks above their medium-term moving averages, is at its highest point since May, just two weeks before the market got very rocky and embarked on the course that took it down to the August low.
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10/04/07In general, I like this trend and I think it has a long way to go … but there are two risks to be aware of today. The first is market risk. While the rebound over the past six weeks has been awesomely profitable for leading stocks - the ones being driven by institutional buying - the breadth of the market is not quite good enough to allow me to relax. I still fear that a “re-test” of that August low may still be possible.
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10/01/07Which brings me to the state of the stock market today. My strongest thought today is that while the headlines are absolutely glum, forecasting recession, lamenting the prospect of $100 per barrel oil, and worrying that the Chinese, the Mexicans and the Arabs (to name just three) threaten our American way of life …the market is very strong!
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09/27/07So where’s the investment? I have two. The first is a big, fast-growing Russian dairy company, Wimm Bill Dann Foods (WBD). It brought in over $2 billion in revenues last year selling milk, cream cheese, yogurt, butter, kefir, cottage cheese, juice, water, baby food and dairy desserts. It’s growing revenues at a rate of about 40% per year. It’s expected to grow earnings by 35% in 2007 and 40% in 2008. Its current PE ratio is 33. And the stock is trending up!
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09/20/07The market’s upside action this week, in the wake of the Fed’s interest rate cut, has been unusually bullish by many technical measures. But I’m not going to write about that today. I’ll leave that to ace technical analyst Mike Cintolo, who weighs in on Monday. Until then, suffice it to say that you should be heavily invested now.
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09/17/07Last, but not least - there’s one more automobile company that’s public, but you won’t find its vehicles on any highways. It’s Zenn Motor Company (4ZNN). The name stands for Zero Emission No Noise), and if you’ve got your thinking cap on you’ve probably guessed that means it runs on batteries. Correct.
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09/13/07A few nights ago, as I found myself sitting at a dinner table with a group of strangers, by way of making conversation (and doing research) I asked, "What do you think will happen with the real estate market?" Their answers: "It'll come back" and "We've been here before." Not wanting to be a wet blanket, I didn't disagree. But I think they're wrong. I think there's a lot more downside ahead, and that getting there will take much longer than most people imagine today.