The Second Mouse

 
This is an excerpt from Cabot Growth Investor, where we’ve been picking the best growth stocks since 1970. Cabot’s flagship advisory combines expert stock selection and award-winning market timing. It’s the most complete and most helpful, growth-oriented investing advisory available anywhere.
 


“The early bird catches the worm” is a phrase we all learn early on.  I myself am an early riser—I’m writing this at 5:30 this morning in the peace and quiet of my home office with a hot cup of coffee. I’ve always done my best work in the morning hours, in fact, and try to get as much as done as possible before the morning rush.

But as you know, the market is a contrary animal; many things that are advisable in real life fail when applied to investing. (That, along with a general lack of discipline, is why most investors have mundane returns.) And so it is with being the early bird—leading stocks often take a while to get going, so investors who race to jump in first often buy the wrong stocks at the wrong time.

A more apt saying might be, “the second mouse gets the cheese”—when buying individual stocks. It’s not about buying first, but buying the right stock at the right time.  

That’s especially true today, when we’ve seen a return of the hugely split tape from earlier this year. While the big-cap indexes look great, small- and mid-cap indexes are just so-so and the broad market is coming under pressure (our Two-Second Indicator is negative once again). Indeed, as of Tuesday, nearly two-thirds of all stocks on the NYSE and Nasdaq remain below their 200-day moving averages—not exactly a sign of strength.

As for growth stocks, they’ve bided their time during the past three weeks, setting up their next play … and in our view, their next play is going to tell us a lot about the potential of the current rally. Should some of the many set-ups we see lift off, new leadership should produce a sustained, highly profitable run. But if the vast majority fail, and all the market has for leadership are stocks like General Electric and McDonalds … well, let’s just say we won’t be as optimistic.

Still, in recent days, we have seen a few growth stocks lift off, and with several dozen key earnings reports due in the coming days, we’re thinking more could get going. But instead of anticipating, we’re content to be the second mouse—if stocks break out (especially on earnings), we’re happy to jump in, but if they don’t, we’ll go slow. Stay tuned.

The game plan here is straightforward: (1) Do some buying in growth stocks that are acting well, (2) keep tight stops on stocks that are lagging in this uptrend, and (3) have your shopping list ready should more growth stocks kick into gear.

Michael Cintolo can be found on Google Plus.

Stock Picks

Tesla Motors

If Tesla ever begins to cut back on development and innovation costs, earnings will soar.

Alibaba

China seems to be raising up its very own version of Amazon in Alibaba (BABA.

Facebook

Roy Ward uses the PEG ratio to determine if the stock is undervalued or overvalued.

Cabot Wealth Advisory

What Fed Speeches Mean for the Stock Market Today

By Chloe Lutts Jensen on September 29, 2016

Four Fed presidents gave speeches yesterday, and every word was digested by the stock market in an attempt to better predict the Fed’s next move. With odds of a December rate hike now about even, how should stock investors prepare?Read More >

The Emerging Market Stock You Ought to Own

By Paul Goodwin on September 27, 2016

The company I’m talking about (the one that you probably don’t own) is the largest Chinese instant messaging company. It is a giant in its own right, with a market cap of $262 billion and annual sales of over $19 billion. The company grew revenue by 28% in 2015 and routinely boasts after-tax profit margins over 30%.Read More >

Tesla Model 3 vs. Chevy Bolt: Which Affordable Electric Car Is Better?

By Timothy Lutts on September 26, 2016

The Tesla Model 3 and Chevy Bolt are the first two affordable electric cars with a driving range of more than 200 miles. Let’s see how they stack up - and what they could mean to Tesla Motors (TSLA) and General Motors (GM) stock. Read More >