Stock Market Video
Watch Lists: How Growth Investors Get Through a Market Winter
It's Hardest to Keep Things Simplest
In Case You Missed It
In this week’s stock market video, Mike Cintolo is still playing defense when it comes to the intermediate- to longer-term market trend, but he believes this past Wednesday's action has a good chance of marking a short-term low. Mike talks about levels he's watching in the indexes, and what action you can consider should this bounce phase play out. His main focus with any rally is to separate the wheat from the chaff when looking at individual stocks, and Mike relays a handful of names that are already showing some encouraging action. Click below to watch the video.
Watch Lists: How Growth Investors Get Through a Market Winter
Gardeners can’t garden in winter; that’s a fact. Or at least it’s a fact here in New England, where the ground can stay frozen for more than four months a year.
Downtime is just part of the life of a gardener. Just ask my wife.
Our roses are bedded down under blankets of chopped leaves and pine needles (and snow) while we wait for spring. There’s a logic to winter that says, “Only an idiot tries to plant in frozen ground.”
Growth investing is pretty much the same. When the bears have control of the markets, the likelihood that a new investment will turn out to be a winner is greatly reduced.
Fortunately, during periods of enforced idleness, gardeners and growth investors have a similar resource to help pass the time. And it’s one that eventually pays off in similar ways with flowers (and profits) once the weather changes.
Gardeners call them seed catalogs; growth investors call them watch lists.
Starting in January of each year, my wife gets a steady stream of catalogs from nurseries, heirloom seed outlets, garden tool dealers, arborists and bulb growers. And they all have the same message: Just imagine how great things will be once the thaw comes. So let your imagination run free and start planning next year’s beautiful beds!
For growth investors, digging through lists of stocks offers the same pleasure, and the same promise.
So, what do I look for when I’m looking through equity seed catalogs?
My task is relatively simple, just because my investment universe is limited to emerging market stocks that trade on U.S. exchanges as American Depositary Receipts. But I’m looking for the same things every growth investor does:
1) Stocks that are outperforming the market, either by staying stable or advancing when markets are in decline or moving sideways. Being out of step with the markets in a positive way is always worth investigating.
2) Recent IPOs that don’t have a ton of institutional support yet. Getting a jump on the whales can lead to long, profitable runs.
3) Earnings season stars. If a stock makes a big leap higher following a stronger-than-expected quarterly report, that can lead to continued positive momentum.
4) Great new ideas from either newcomers or old, established companies. A really new product or service can stoke investors’ enthusiasm and carry your investment along with it. (I often think about how Crocs swept the world with a love of ugly plastic sandals. And when I came back from a business trip with pictures of a Crocs display in an airline terminal, Cabot got seriously interested. Our subscribers were glad we did.)
5) One of my personal favorite techniques is just to run through the charts of any interesting group, looking for exceptional strength. That’s when a little research will tell you why the stock is strong when most others are languishing.
Watch lists change pretty constantly, as promising stocks don’t pan out and more attractive candidates appear. They’re not a buy list until you get a buy signal from the market. But they give you a head start on the large population of discouraged investors who haven’t had the heart to sell their losers and won’t get excited again until a new bull market has been going on for months.
One additional benefit of the watch list is that it keeps your mind in the game when active buying isn’t a good idea. Research, planning, thoughtful attention—these are the seeds that will lead to great results whether you’re a gardener or an investor.
(Oh, just btw, if you’d like to receive a growth investors’ seed catalog analyzing the 10 strongest stocks every Monday, Cabot Top Ten Trader has been doing just that for years. Cabot’s growth analysts find the top charts of the previous week and tell you why the stock’s story has been grabbing attention, checking revenue and earnings growth and recommending buy ranges and protective stops. Contributing to Top Ten is my favorite job every Monday, because it keeps my finger on the pulse of the market. It can do the same for you.)
---Here’s this week’s Fortune Cookie. Remember, you can always view all previous Fortune Cookies here and Contrary Opinion buttons here.
“It's Hardest to Keep Things Simplest”—Brad Koteshwar
Mike's take: The market is a highly complex animal, but ironically, the best investors usually have methodologies that boil down all of the market's noise, volatility, news, gaps, rumors and earnings to a relatively simple message. And it's times like now when those methodologies shine—while 90% of investors are reading about things like Chinese manufacturing surveys and oil output forecasts, the smart thing to do is simply to realize that the trend of the market is against you right here, and thus, hold cash, be patient and be ready when the trend turns up.
Paul’s comment: The best thing about Cabot’s approach to market timing is that it simply follows what the market is doing. If stocks are rising and money is being made, our timing indicators say to buy. If stocks are falling and you can’t find a winner in a bushel basket of stocks, our indicators tell us to pull out of growth stocks and go to cash. It doesn’t get much simpler than that.
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.
In this issue, Tim Lutts, Chief Analyst of Cabot Stock of the Month, looks at lottery fever and why people engage in such improbable speculations. Tim writes about criteria for more sensible investments. Stocks discussed: Nevro (NVRO) and Whirlpool (WHR).
In this issue, I run down the rest of my list of the strongest stocks of 2015, finishing the job I began in the January 9 issue. Stocks discussed: NeoPhotonics (NPTN), Intra-Cellular Therapies (ITCI), Natural Health Trends (NHTC), Energy Focus (EFOI), Dyax (DYAX), Sarepta Therapeutics (SRPT), Heron Therapeutics (HRTX), Ultragenyx Pharmaceuticals (RARE) and Neurocrine Biosciences (NBIX).
Roy Ward, Chief Analyst of Cabot Benjamin Graham Value Investor, discusses the advantages of an annual portfolio review to keep your target balance between stocks and bonds. Stock discussed: Prudential Financial (PRU).
Chief Analyst, Cabot Emerging Markets Investor
and Editor of Cabot Wealth Advisory