Growth and Value Stock Number Seven
This Week’s Fortune Cookie
In Case You Missed It
In this week’s Stock Market Video, I talked about the shift in the market’s direction. Despite the major indexes’ strong uptrends, many of the growth stocks that have provided leadership during the past months are pulling back. Investors are showing more of a preference for more defensive stocks, giving support to energy and transportation stocks. There’s lots of nervousness in the market, and stocks that disappoint in their quarterly reports are being treated very roughly. So keep your sell disciplines sharp. I also talk about some differences between buyable pullbacks and ones that should flash a warning light.
--- Advertisement ---
We're Going to Send You Our Entire Buy List Tonight!
2013 will be remembered as one of the most profitable years on record. I can say this with 100% confidence because we've already pocketed 79% gains in Equinix, and we're sitting on a 131% gain to date in LinkedIn, a 81% gain in Qihoo 360, a 70% gain in Netflix and this bull market is far from over.
Our time-proven technical indicators are forecasting a major breakout ahead for a select group of growth stocks that continue to outpace the market by a country mile. In fact, the numbers we are seeing indicate that the stock market's rocket ride to 15,000 is just the beginning of a bold new bull run.
The last time all three of our Cabot Market Letter indicators hit the same threshold, my readers grabbed a 440% rise in Ascend Communications, a 559% profit in QUALCOMM and a 307% rise in Crocs.
We see similar profits headed your way, if you add our newest recommendations to your holdings NOW before the next big run up begins.
Click here for details.
Growth & Value Stock #7
This series about Growth/Value stocks has featured a group of companies whose fundamentals make them attractive to value investors, but only if the price is right.
With Northrop Grumman (NOC), we come to a stock that illustrates a point of real conflict between value and growth investors.
When Roy Ward, the number-crunching power behind Cabot Benjamin Graham Value Report, included Northrop Grumman in his October list of “275 Top Value Stocks,” NOC had already outrun the strict limits that the value discipline imposes for buying and selling.
Roy said that NOC would be a good buy at a Maximum Buy Price of 59.59. Given that the stock has been trading over 100 in the last couple of weeks, I’d have to say that yes, that would be a very good place to buy it.
Unfortunately, NOC hasn’t been trading under 60 since June 2012.
The fortunate investor who bought NOC at its value price of 59.59 would have waited until the stock reached its Minimum Sell Price of 90.69, which happened in July 2013.
While the stock was making that upmove, value investors would also have enjoyed the company’s quarterly dividend that paid an attractive 2.3% forward annual dividend yield.
But here’s where the story gets interesting for a growth investor. Northrop Grumman was first featured in the June 17, 2013 issue of Cabot Top Ten Trader. On that day, NOC closed at 84.
By the time NOC made its second appearance in Cabot Top Ten Trader (October 28, 2013), the stock had soared to 108, which is just about where it’s likely to close for the week. So, if a value investor had sold NOC when it tagged 90.69 in July, they would have missed out on a stock that ran from about 91 to 108, with no apparent limits on how high it might go. Here’s a chart to illustrate. The month on the far left is June, 2012, when the stock left its Maximum Buy Price behind.
I know that situations like this are what separates the value investors from the growth people. The essence of the value strategy is risk control, and it’s the accumulation of predictable gains through a widely diversified portfolio of undervalued stocks that gets the job done over time. For growth investors, a good story, sound fundamentals and a chart with some evidence of buyers stocking up on the stock is the ideal. And Northrop Grumman certainly fills that bill. Cabot always says that you can make money in any investing style if you follow the rules. And that’s why we offer investing advisories that span different strategies.
Tim’s Comment: Lynch was famous for not timing the market—for staying fully invested at all times—and with good reason. His Fidelity Magellan fund was too large, once he got famous, to be able to do anything but stay fully invested. And he's right about the average investor. Following their emotions, they typically do exactly the wrong thing. Happily, Cabot's unemotional system does allow individual investors to time the market successfully, and in the process, beat the fully invested professionals!
Paul’s Comment: It takes courage, and a certain amount of discipline, to take what’s happening in the market at face value and ignore the teams of economists and market gurus who try to anticipate the future. The future will get here soon enough, and being able to tell a bull market from a bear is all the information you need to set your sails for the current conditions.
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.
Tim Lutts, head of Cabot Stock of the Month, uses the story of Red Sox hero Curt Shilling to make a point about overconfidence. Shilling tried to parlay his fame (and considerable fortune) into a profitable video game business. Stock discussed: SunPower (SPWR).
Chloe Lutts Jensen, the head honcho of Investment Digest and Dividend Digest, shares investors’ stories about how they got started in stock investing and where they got their information and rules. The importance of a good mentor is huge!
I wrote in this issue about one of my dire experiences with investing and how market timing can take a little of the scariness out of growth investing. I also give the fifth in my series of stocks with both growth and value characteristics. Stock discussed: Magna International (MGA).
Have a great weekend,
Chief Analyst of Cabot China & Emerging Markets Report
and Editor of Cabot Wealth Advisory