A Stock with Long-Term Potential
Things Are More Like They Are Today Than They Ever Were
Stock Market Video
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Every morning when I look through Investor’s Business Daily, something in its pages catches my eye. It’s a little box, usually in the second section, that details How to Succeed with IBD. It inspired me to write, How to Succeed with Cabot.
1.) Select a system. Our newsletters run the gamut of investing systems. From growth and value to options trading to emerging markets to energy; we cover a vast section of the investment landscape. It can be daunting, especially for new investors, to determine which system best suits them, but it’s a very important task. One way to help determine this is by taking our quick quiz, Which Cabot Letter is Right for You?
2.) Read our advice. Once you determine which system best suits your investing needs, it’s time to sign up for one (or more) of our newsletters. We have our flagship, Cabot Market Letter, which is a traditional growth newsletter that uses our proprietary market timing indicators. Cabot Global Energy Investor applies Cabot’s growth system to the best stocks in the energy sector. Cabot China & Emerging Markets Report applies the Cabot growth system to the emerging markets. Cabot Top Ten Trader is a momentum-based newsletter that many investors use as a source of new ideas. Cabot Benjamin Graham Value Letter is best suited for conservative investors seeking high-quality undervalued stocks. Cabot Small-Cap Confidential is for long-term investors looking to invest in undiscovered emerging companies. Cabot Options Trader uses short-term options to play the market in both uptrends and downturns. Cabot Stock of the Month recommends picks from several of Cabot’s newsletters to give subscribers a taste of each of them while building a diverse portfolio. You can compare all of our newsletters here.
3.) Follow our advice. Some of the most common questions we answer are from subscribers who bought a stock when we recommended it, but failed to sell when we did. They hang on too long, the stock continues to sink and they are paralyzed against taking action. We also hear from people who don’t precisely follow our market timing advice and miss out on big market advances or get pummeled when the market tumbles. Each of the stocks recommended in our newsletters is selected based on the system the letter follows and need to be handled accordingly. For example, at one point our momentum-based newsletter Cabot Top Ten Trader and our value newsletter Cabot Benjamin Graham Value Letter were both recommending Apple (AAPL). But they had different buy targets (and sell strategies), so some readers are confused. Before jumping into any stock, be sure to know what system you’re using, particularly what sell discipline. Once you find your system and newsletter, follow the advice. It will ensure that you build profits and protect your wealth.
4.) Do your own research. Our newsletters provide detailed write-ups on all of the stocks we recommend, many with both fundamental and technical analysis. We vet every stock carefully before recommending. But it doesn’t hurt for you to do your own due diligence before putting a chunk of your portfolio into a stock. You’ll feel more invested in the decision (pun intended) and confident in your selection if you don’t just take our word for it. On the flip side, don’t invest in stocks that you’ve fallen in love with. You need to keep some emotional distance between yourself and the stocks in your portfolio.
5.) Keep track of your portfolio. This is very important for improving as an investor. Once you decide which stocks to invest in, keep a record of them and your trades. This will help you see mistakes that you’re making (like not selling quickly enough or jumping in before an uptrend is confirmed) and help you correct them moving forward. Review this record at various intervals depending on how frequently you trade; weekly, monthly, quarterly and yearly are good timeframes to keep in mind.
Today’s stock recommendation comes from Cabot Stock of the Month, one of the best newsletters to get started with Cabot because it gives subscribers an idea of what many of our other advisories have to offer. The stock is Whole Foods Market (WFM) and it was originally recommended in Cabot Top Ten Trader last year. Here’s what Cabot Stock of the Month Editor Tim Lutts wrote about it in May 2010:
“One of ace investor Peter Lynch’s favorite business models is the ‘cookie-cutter,’ which simply involves building the same successful store again and again in new places. McDonald’s perfected the model, and Whole Foods Market is following the same profitable path, though at a higher price point. As a result, it’s now the largest and most profitable organic food marketer in the world, with 295 stores in the United States, Canada and the United Kingdom.
“McDonald’s competed on price; Whole Foods competes on quality, targeting the consumer who wants healthy organic food and will pay more to get it. In fact, prices at Whole Foods are so much higher than those at ‘regular’ grocery stores that its detractors have called it ‘Whole Paycheck.’ But those prices mean margins are higher than at the regular grocery store, typically ranging between 2% and 3%. And revenues at Whole Foods have grown in every one of the past 10 years, a sure sign that customers are satisfied.
“Employees are satisfied, too. Whole Foods has been ranked for 13 consecutive years as one of the ‘100 Best Companies to Work For’ in America by Fortune magazine. That all stems from the company’s efforts to ‘do the right thing,’ not just for customers but for employees, providing health and dental insurance, a wellness plan, paid time off and much more.
“And that all stems from John Mackey, who founded the company 30 years ago, and stepped down as CEO in December, though he remains on the company’s board of directors. In some companies, the loss of a stemwinder might be worrisome, but we’re confident the company will continue to thrive, just as McDonald’s continues to thrive without Ray Croc. The formula is simple: Continue to duplicate the best-performing stores, while experimenting with the formula by tweaking various factors.
“The Great Recession was challenging for Whole Foods; as consumers cut back, profit margins slipped to a low of 1.1% in the third quarter of 2008, and revenues grew just 1% in 2009. But the consumer is back, and the prospects are as bright as ever for the company. After all, Whole Foods is present in only 38 states now; there’s a lot more of the U.S. to serve, not to mention the rest of the world.
“In the second quarter, ended April 11, 2010, Whole Foods opened three stores. It’s opened three stores so far in the third quarter, and three additional stores are expected to open before the quarter ends. In addition, the company has signed an asset purchase agreement for two additional stores in Chattanooga, Tennessee, and Asheville, North Carolina. Always tweaking, it’s reduced the size of three stores in development by an average of 14,500 square feet. And it recently signed two new leases averaging 40,900 square feet in Wellesley, Massachusetts, and Oklahoma City, Oklahoma, which are scheduled to open in fiscal year 2011 and beyond.
“As to the chart, the stock’s long-term uptrend was interrupted by the bear market of 2008, when some investors feared consumers might never buy luxury foods—like aged balsamic vinegar and blueberry vanilla biodynamic tea—again. But the stock has recovered and is now enjoying strong sponsorship.”
And just this week Tim wrote: “Whole Foods Market (WFM), originally featured in Cabot Top Ten Trader, was the rare stock that went up yesterday while the market was collapsing. And today it climbed higher still! This is great action, yet it has brought the stock right up to its old March-April highs of 66, a level that will function as resistance until the stock can push through it. As a result, we don’t recommend buying here; new buyers should wait for a pullback … or a high-volume breakout. If you own it, sit tight; Whole Foods still has excellent long-term potential.”
You could buy WFM here and hope for the best or you could subscribe to Cabot Stock of the Month to get Tim’s latest recommendation on this and other of Cabot’s best picks. Click here to learn more.
Now for this week’s Contrary Opinion Button. Remember, you can always view all of the buttons by clicking here.
Things Are More Like They Are Today Than They Ever Were
Credited to Dwight D. Eisenhower, the original phrase has an additional word at the end: "Things are more like they are today than they ever were before." In any event, its truth is unassailable. But what is its utility to investors? It reminds us that while market cycles rhyme, they don't repeat, and we should guard against the temptation to believe that today's market—and therefore tomorrow's—will mirror some market of the past.
In this week’s Stock Market Video, Cabot Top Ten Trader Editor Mike Cintolo says that the stock market sagged this week after a powerful kick-off in late June. Despite good action recently, the market has really been range-bound since February. But Mike says the blast-off signals that accompanied the recent breakout (and the terrible news floating around) indicate that the market is in good shape. So we’re leaning bullish, but not fully bullish. Stocks discussed: Chipotle Mexican Grill (CMG), Lululemon Athletica (LULU), Netflix (NFLX), Under Armour (UA), Rosetta Resources (ROSE), Halliburton (HAL) and Rockwood Holdings (ROC). Click here to watch the video!
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Futures Point to Huge Breakout
We’re just coming out of a months-long market correction, and I’m already seeing more momentum in the marketplace than I’ve seen in the past six months.
If our optimum technical momentum indicators (OptiMo) are on target again, as they were throughout the first half of the year, this is going to be THE WEEK to trade this market.
Click here to get started today!
In case you didn't get a chance to read all the issues of Cabot Wealth Advisory this week and want to catch up on any investing and stock tips you might have missed, there are links below to each issue.
Cabot Wealth Advisory 7/11/11 – Six Ways to Reduce Risk
On Monday, Cabot Publisher and Cabot Stock of the Month Editor Tim Lutts discussed why the sooner you learn to identify and eliminate the greatest risk factors in your investing, the sooner you'll be on the path to increased profits and decreased pain. Tim also printed some reader letters regarding his recent column on mindless entertainment. Tim finished by recommending a stock that’s behaving well. Featured stock: Sequans Communications (SQNS).
Cabot Wealth Advisory 7/12/11 – Why the Market could Plunge and How to Protect Your Portfolio TODAY
On Tuesday, we heard from StreetAuthority co-founder and chief investment strategist of StreetAuthority’s Top 10 Stocks Paul Tracy on why the end of the U.S. government’s quantitative easing program could spell disaster for the market … and what he recommends if the market does plunge.
Cabot Wealth Advisory 7/14/11 – The Hard Work of Selling Losing Stocks
On Thursday, Cabot China & Emerging Markets Report Editor Paul Goodwin discussed the difficulties investors have when selling their “rotten apple” stocks. He then discussed three reasons to sell. Paul also recommended a Chinese stock on the cutting edge of online edutainment for children. Featured stock: Taomee Holdings (TAOM).
Until next time,
Editor of Cabot Wealth Advisory