By Michael Cintolo, Vice President of Investments and Editor of Cabot Market Letter and Cabot Top Ten Report
From Cabot Wealth Advisory 3/29/08 Sign up for free Cabot Wealth Advisory e-newsletter
I continue to stalk Visa (V), a new stock. It's too soon to buy it, but considering that many big banks (including JP Morgan) own stakes, and given the superb business model, I believe it could be a big-cap leader of a new bull market. I'm guessing hundreds of mutual funds are already busy accumulating stakes.
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Michael Cintolo
Vice President of Investments and Editor of
Cabot Market Letter and
Cabot Top Ten Weekly
A growth stock and market timing expert, Michael Cintolo is editor of Cabot Market Letter and Cabot Top Ten Weekly. Since joining Cabot in 1999, Mike has uncovered exceptional growth stocks and helped to create new tools and rules for buying and selling stocks. Perhaps most notable was his development of the proprietary trend-following market timing system, Cabot Tides that has helped Cabot place among the top handful of market-timing newsletters numerous times.
By Michael Cintolo, Vice President of Investments and Editor of Cabot Market Letter and Cabot Top Ten Report
For Cabot Wealth Advisory, 3/20/08 Sign up for free Cabot Wealth Advisory e-newsletter
I've received a bunch of questions regarding the Visa (V) IPO this week. Many believe, because MasterCard (MA) turned out to be such a good investment, that Visa is probably a good buy. My answer to that is...maybe.
You see, in my view, it's never a great idea to simply jump in to a new issue, no matter how good the story is supposed to be. Why? Because I've seen charts of many of history's greatest IPO winners, and the vast majority of them form some sort of launching pad before rising in a big way.
Unlike more seasoned stocks, these consolidation periods can be brief—sometimes just two or three weeks long—but they tell you that institutional investors are accumulating shares in a given price zone. That's a key piece of evidence you need to have confidence to go into a stock in a big way.
Examples: Google (GOOG) formed a three-week zone between 98 and 113 in 2004 before breaking out and rising 77% in eight weeks.
VMware (VMW) took a couple of weeks to pause between 64 and 74 before breaking out and rising 69% in nine weeks.
MasterCard (MA) stood around for seven weeks between 44 and 51 before breaking out and doubling in four months.
There are dozens of examples like this throughout history, but these are the most recent success stories. The good news is that these consolidations tend to happen quickly—i.e., the stocks begin a basing structure soon after coming public. So it's not as if you have to wait six months while the stock marches higher.
Thus, from a technical perspective, the game plan is obvious: Do not buy the Visa IPO, but do keep an eye on the stock. If it can form a relatively tight consolidation and if the market can show real signs of turning up, then you could consider taking a position on a breakout. It takes some work, but as you see above, the rewards can be worth it.