By Timothy Lutts, Chief Investment Strategist and Editor of Cabot Stock of the Month Report
From Cabot Wealth Advisory 2/8/10 Sign up for free Cabot Wealth Advisory e-newsletter
The recent problems at Toyota (TM), combined with the collapse of the stock, which is now off 19% from its January high, have erstwhile bargain-hunters asking if the stock is a good buy here. I think not, and here’s why.
Toyota (the company) enjoyed a great long uptrend in its fortunes, thanks to its ability to design and build high-quality cars that were affordable. People grew to trust Toyota more than any other car company on earth. And over the same period, the company’s stock enjoyed similar growth.
Part of the stock’s growth was absolutely reasonable, reflecting the company’s fundamental achievements, but part of it was irrational, reflecting people’s growing love of the company. And while the stock’s collapse to date may accurately reflect the logical loss of earnings power, I believe it does not yet accurately reflect the loss of that love.
The fact is, in millions of households all over America, people are angry at Toyota for failing them. People who once automatically bought Toyota’s cars because they trusted the company (a fact that was more important to them than any technical feature) will now look elsewhere. Toyota has failed them, and like any lover who’s been disappointed, they will hold a grudge.
One of the truisms in our business is that trends tend to go to extremes. They last longer than expected, and they go higher or lower than expected. And so, I believe, it will be with Toyota. Yes, there will be short-term bounces, and profit opportunities for traders. But Toyota’s best days are over. I wouldn’t touch the stock with a 10-foot pole today.
If you’ve got to own a car company, Ford (F) is still attractive. But that’s a story for another day. Today, I think one of the best sectors for investing is in medicine and health care.
Timothy Lutts President, Chief Investment Strategist, Editor of Cabot Stock of the Month
Timothy Lutts heads one of America’s most respected independent investment advisory services, publishing eight newsletters to more than 165,000 subscribers around the world. Tim leads a dedicated team of professionals who serve individual investors with high-quality investment advice based on time-tested Cabot systems. Under his leadership, Cabot has been honored numerous times by both Timer Digest and the Hulbert Financial Digest as among the top investment newsletters in the industry. Tim also edits Cabot Stock of the Month.