A Curious Market: Stock Market Video
Cocktail Party Stocks
This Week's Fortune Cookie
In Case You Missed It
In this week's Stock Market Video, I talk about the curious state of the market; it's in an uptrend, but results are very idiosyncratic, and you have to pick your targets carefully. I also give some examples of larger, safer companies that can offer a safe haven in this kind of market. Click below to watch the video and see my stock picks.
Cocktail Party Stocks
One thing that distinguishes Cabot from many experts who write about stocks on the Internet is that we take responsibility for the stocks we recommend in our portfolios. The Cabot Market Letter, for instance, can have up to 12 stocks when fully invested, and subscribers are told every week what we are thinking about each one. Chief Analyst Mike Cintolo says when to buy, when to hold and when to sell.
I do pretty much the same thing with Cabot China & Emerging Markets Report, which looks to build a portfolio of 10 stocks. That's a little more aggressive than the Cabot Market Letter, but that seems appropriate for a volatile chunk of the global market, which emerging markets certainly are.
No matter the advisory, if we actually recommend buying something, we don't just toss out the advice and forget about it. There are certainly times when forgetting would be convenient, especially during a market correction like the one we've all endured this week. But that's not how we have ever done business. When we recommend a stock, we keep readers updated on our thoughts about the stock, every week, until it's sold.
The exception is the stock picks that we include in Cabot Wealth Advisory. Cabot is a business, after all, and while we strive to give good advice and potentially profitable stock recommendations here, we can't just give away the store. If you buy something recommended here, you're on your own. And if that gives you the idea that you'd like a higher, more continuous level of advisory service, you can find more information on our various advisories by clicking here.
I haven't made a big deal out of it, but every once in a while I've been running a series called Cocktail Party Stocks (CPS for short). These are the stocks that you would talk about if someone at a party asked you for a stock recommendation.
A CPS has to be easy to explain, and not all stock picks are. If you even so much as mention earnings growth or price/earnings ratios to someone at a party, you can see their eyes glaze over as if they'd been turned into instant zombies. People at parties have the attention span of four-year-olds (but not the maturity).
A good party stock needs a couple of things: First, it needs a convenient comparative nickname ('The Google of China,' for instance, or 'The eBay of Latin America'). In this respect, a good party stock is like a good Hollywood movie pitch, which usually crosses two successful movies, like "Think Dallas Buyers Club crossed with Chicago!"
It also needs a one-sentence summary of its company's business plan that's simple enough (and appealing enough) to appeal to someone who's just starting on their third Manhattan.
The stock I have in mind was suggested by Mike Cintolo, Cabot's Vice President of Investments, Chief Analyst of Cabot Market Letter and Cabot Top Ten Trader, and all-round growth investing guru.
So here it is, Mike Cintolo's Cocktail Party Stock. It's like Buffalo Wild Wings crossed with Whole Foods Market! It's a fast-casual restaurant chain that specializes in organic Mediterranean-style cuisine, Southern hospitality and rapid national expansion. (There's your comparative nickname and your one-sentence pitch.)
Zoes Kitchen (ZOES) was founded in 1995 in Homewood, Alabama, as a place with simple food, cheerful service and quality ingredients. Its founders also had expansion on their minds as soon as the first location was solidly successful, with a second location opened in 1999, a third in 2001 and a total of 20 by 2007. At that point, big investors came aboard, and Zoes now boasts 114 company-owned stores and six franchised stores. 2014 has already seen 18 new locations opened and the company expects 23 to 25 additional openings this year.
Zoes isn't profitable yet, preferring to use its cash flow to scale up. Revenue grew more than 50% per year from 2010 through 2012 and cooled to 46% in 2013.
It's that process of scaling up through expansion of a chain of restaurants with a proven formula for success that makes Zoes such a favorite of Mike's. He's seen Buffalo Wild Wings (BWLD) grow from a company with 415 restaurants and annual revenue of $253 million in 2006 (when it was first recommended in Cabot Top Ten Trader) to a national chain with over 1,000 locations, plans to open 100 more this year and annual revenue of $1.33 billion.
If you cross the great example of Buffalo Wild Wing's expansion with the healthy appeal of quality ingredients like Chipotle Mexican Grill, you can see why Mike would want to talk about Zoes Kitchen (ZOES) at a party.
Here's my challenge to you: Tell me about your favorite Cocktail Party Stock, the company that has a story you love to talk about when you have a drink in your hand (and find someone who shares your enthusiasm for stocks). I'll pick a few of your responses and feature them in a future Cabot Wealth Advisory. Just respond to this email with a brief description of what you like about the stock. I probably won't be drinking when I read them, but the spirit will be there.
Tim's Comment: The qualifier is the word "wide." In my book, 50 stocks is way too many for most portfolios; even 30 is too many. For the investor who knows what he's doing, and who's paying attention, I think ten stocks is plenty. The more you diversify, the more your results will tend toward average. Contrarily, the more you focus, the greater your potential to outperform.
Paul's Comment: For me, the big qualifier in Tim's comment is "and who's paying attention." A growth investor who is willing to do the work of stock selection and then remains active in managing his portfolio can take on much more risk. If you're not prepared to spend a little time every day keeping track of your results-picking good stocks, cutting losers short and letting winners run-you should probably stick to mutual funds.
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 Stock of the Month's Chief Analyst, Tim Lutts, writes about Cabot's Black Book of market records and how it helps to keep us focused on what the market is doing, which is mostly good right now. He also gives the eighth in his series of 10 stocks to buy and hold forever. Stock discussed: Buffalo Wild Wings (BWLD).
In this issue, I write about what happens when you start to study something and your research keeps making connections to other things. That's what happens with Tom Garrity, Chief Analyst of Cabot Small-Cap Confidential. Stock discussed: 58.com (WUBA).
Chloe Lutts Jensen, Chief Analyst of Cabot Dividend Investor, writes in this issue about the 46% of Americans who own no stocks at all. She also details the appeal and pitfalls of "unconstrained bond funds."
Chief Analyst, Cabot China & Emerging Markets Report
And Editor of Cabot Wealth Advisory
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