Bargain Shopping

stockrally

For my first 2017 post, I could write about my 2016 watch list returns and how they once again beat all three averages or how my overall investment returns fared much better or how my option trading was a total mixed bag of results; but I won’t.

Instead, I am going to form this post around a question many folks are asking now a days regarding the Trump rally and some interesting “gossip” predictions for the coming year.

First: The Trump Rally:

Though I have been known to try and hop on the momentum bandwagon as the rally train seems to be gaining steam and leaving the station for a run, I generally don’t chase stocks or rallies – especially once they have left the station. 

Instead, I look for good quality stocks setting up in either a good pattern, nearing buy points, or for some reason, have been slow out of the gate and not participated in the rally.

The Trump rally has been in full steam ahead mode since the election and many high flying stocks are now looking tired or pulling back. 

In fact, out of all the current IBD 50 list of stocks, most have notations of “well extended past buy point” or “OK to take profits”. 

Most, but not all.

Some high fliers are forming good secondary buy points or are within buy range of break out points.

Here are the ones worth considering for a watch list – according to IBD.

SCHW – Charles Schwab nearing entry point with a four weeks tight pattern (a bullish consolidation pattern).

OZRK – Bank of the Ozarks is nearing a cup / handle buy point.

MSCC – Microsemi, currently in a three weeks tight pattern.

GS – Goldman Sachs has enjoyed the Trump rally and is in a four week tight pattern.

These next two are very intriguing to me because they are forming one of the strongest positive patterns and are NOT extended past buy points.

STMP – Stamps, is in a cup with handle pattern and near a breakout buy point.

AMN – AMN Healthcare, is also in a cup with handle pattern and near a buy point.

Of course, there are some other non-IBD50 stocks I am watching.  These include:

MLM – Martin Marietta Materis, is in a nice flat base on base pattern.

STZ – Constellation Brands, has been hit hard by the Trump election results because of “Mexico” and fears of tariffs and trade wars; however the stock is near support and in a nice reversal pattern.

CX – Cemex, is a Mexican Cement Company which also has been hit hard by the Trump foreign economic policy.  However, nearly one third of the company’s business comes from US infrastructure demand.  Wall or no Wall, the US is going to be building up infrastructure and needing cement.

And last but not least are some speculative and “rumor” stocks for a 2017 watch list.

Buyout Rumor Candidates:

NFLX:  Yes, believe it or not there is a rumor out there regarding some big entertainment conglomerate type of media company snatching up Netflix.  The front-runner appears to be DISNEY.  Speculation has it that CEO Iger, set to retire in 2018, is looking for one more big deal.  NFLX is also nearing a top level resistance and breakout point.  So the stars may be aligning for some excitement in 2017.

There are other rumored buyout stocks out there but NFLX is by far the biggest one of all.

Of course all these stocks plus my watchlists listed to the right are exactly that.  Stocks to watch and research.  It’s up to you to decide if and when to invest in them.  I look for good set ups and entry points based on IBD suggestions.

How do you look for bargain opportunities in the midst of a rally? 

When Investing Gets Complicated

complicated 01

It used to be simpler. Or at least it seemed that way when I was a kid. When I was a kid, my parents would talk about stocks and bonds and certificates of deposits. Admittedly, I did not pay much attention. I was more interesting in playing with my friends, fishing, camping, playing sports, and music. But occasionally I did overhear them talking about investments and the following is what I understood as a 10 something year old.

Stocks were something that companies sold you to raise money. In return you got a stake in their company. Stocks were risky because they were tied to the success of the company and changed in value a lot. If the company did well, one could make a lot of money; if they did poorly, one could lose a lot of money if not all of it.

Bonds were something governments sold you to fund projects. In return you got a guaranteed rate of return. But the catch, with bonds and CD’s, was you could not get your money back for, like forever, which means 10 or 20 years or argh! 30 years.I know, not exactly correct but hey, I did say I did not pay much attention. Bonds were safer than stocks because they paid you a set amount of interest over a certain amount of time.

CD’s where what banks sold you to keep your money longer and in return, you got a little more interest.  Again, for years at a time.

As I got older I learned a little bit more. Eventually I learned enough to do most of my investing on my own instead of relying on mutual funds run by other people. I have never claimed to be an expert and every now and then I learn something completely new.

Like the other day when my in-laws asked me about callable bonds.

The only time I have ever paid any remote interest in bonds and CD’s is with my 401K. Even then it is in the form of a managed fund which gets a monthly allocation (about 30%) from my salary every month.  It’s one of many things in my life that is a set it and forget it type of plan.

To this day I try to apply the KISS principles to almost everything I do, including investing. Things are complicated enough without me trying to come up with new inventive ways of handling important things like money.

So when my in-laws called to complain that some of their bonds were being called early and wanted to know if it was even legal, I did not have an immediate answer for them. I actually learned two new things from that one question. Bonds can be callable just like options, and, some can even be called early.

How does this even work?

First let me try and explain a callable bond. The ten year old in me would say something like this:

Long-term bonds can have maturities of 10, 20 or even 30 years. Issuers sell callable bonds to avoid being locked into paying above-market interest rates if market rates fall after a bond is issued. For the investor, this makes a callable bond a riskier investment than a non-callable bond. Suppose a company sells a bond with an 8 percent interest rate and a 30-year maturity. Five years later, market interest rates are down to 6 percent. With non-callable bonds, the issuer is stuck with paying 8 percent while the bondholder — that’s you — can fly high by collecting above-market interest. If bonds are callable, though, the issuer can exercise the call option, pay off the high interest bonds and issues new bonds at the lower market rate. That means that you, the investor, lose out just when you should be benefiting from the fruits of your investing genius.

Because investors take a greater risk by purchasing callable bonds, they usually get higher yields to compensate. This means that the bond pays a higher interest rate if it is callable than if it is non-callable. If interest rates on two bonds are the same, the callable bond usually has a lower market price than the non-callable bond, which boosts its effective interest rate.

This much makes sense. What I could not understand at first, nor my in-laws, is how the issuer could call them back early before the call date. In this case I learned that this is a clause in the contract that states it is subject to a pre-refund. The issuer has the option to call the bond before the call date, usually with an additional premium.

But the end result is the same. The issuer will call the bond and want to re-issue at a much lower rate.

So naturally the next question from my in-laws was what should we do? Right now the rates on bonds, and CD’s for that matter, are not nearly as good as they were many years ago. They are looking at a substantial decrease in income at todays rates.  My initial reaction is that perhaps they should consider either a broadly diversified bond fund or a fixed rate bond or CD that is not callable.

One option which presented itself was an investment plan which laddered bonds or CD’s over a series of years. This method would have them investing 20% of their money every year in shorter term (say 5 year) bonds or CD’s. The net affect would re-invest every five years but on a yearly cycle.

Here is how a CD ladder would work:

Investing 5 equal amounts into 1 to 5 years for example 50,000 would be invested:
10,000 one year maturity
10,000 two year
10,000 three year
10,000 four year
10,000 five year

When the one year matures, you buy a new 5 year because the 5 year is reduced to a 4 year.

Such a plan would require a bit more planning and perhaps more fees. The ten year old in me still believes in the KISS principle and would probably recommend the broader diversified bond fund or a fixed rate. But the laddering approach is interesting especially if you think rates will go up.

The important thing for my in-laws, and anybody else who is looking to buy bonds, is to decide what fits their investment style best, consider all the options regarding rates, term lengths, fees, and most definitely read and understand all the fine print of any contract.

As I researched the myriad of information on the internet regarding callable bonds; including but not limited to, pre-refund, renewable bonds, one-time vs continuous call option dates, call steps, reset preferred as well as all the other investment strategies such as layered vs laddered I definitely began to wonder what I and my in-laws had gotten into.

It can be quite daunting to investors when confronted with all the options out there. That is one main reason I try to keep things and simple as possible.

I’d like to thank Rico over at Smart Money who deftly explained all this in a way that even the 10 year old inside my head could understand.

Investment Club Reborn

water cooler advice

Back in 2014 I wrote about joining my first investment club.  It was, and remained, an informal group of people who get together once a month to discuss mostly IBD stocks and the IBD investment strategies.

Last month we all received an email from our group leader that he was stepping down and that we were welcomed to continue meeting if we wished to do so but he no longer would be involved for what we are presuming health reasons – though none of us are sure of this because, well, frankly he hasn’t said exactly why.

So this month’s meeting was held in uncharted territory.  An investment group with no leader and no plan going forward. 

The meeting basically started with the question, well, what does everyone want to do now?  Which then led to what did we like and not like about the past format and what we wanted to get out of the group.

It turns out that we actually have a very diverse group of people and traders.  One couple splits their energies between long term buys and day trading.  Others spend a lot of time following popular people and sites like Cramer, and Motley Fool and CNBC.  Still others tend to be, or want to be, income investors.  Some play options, some follow IBD almost exclusively others are strictly chart pattern investors.

The one thing we all have in common is the desire to learn more about investing and share ideas.  In fact, one thing we liked least about the format was all the time spent on the IBD way and IBD stocks and not a lot of time on different ideas.  Not that IBD isn’t a good trading philosophy, it is.  But Don, our former leader, lived and breathed IBD and basically ran the group that way. 

Another common least liked format was that the meetings tended to last a bit too long. 

So we have made some changes. 

We are no longer strictly an IBD investment group but rather a stock study group. 

We are keeping our monthly meetings but have vowed to keep the time spent closer to an hour instead of 2 – 3 hours. 

We have started a Facebook group page where we all can post and discuss ideas and current stock market topics.  Maybe it is the novelty of the group page, maybe this week has had a plethora of good subject matter in the stock market, maybe we are all budding social media butterflies – but the group page has been quite active.  Not a day goes by without at least a couple people getting on and posting and commenting.  Suddenly, the group has become very interactive and collaborative and I really like that.

When the topic of what we were looking to get out of the group I said I was looking for new ideas or resources to bounce my research off of. 

For example, I often look at a stock or market chart pattern from multiple time frames.  From daily charts all the way out to a year.  If a chart shows a basic over sold or over bought signal on most time frames then I believe that is a stronger signal with a higher probability of being correct.  Obviously it is not that simple nor does it always work out that way but that is one way I approach research. 

So, in this instance I am interested in being able to have a handful of resources available to bounce ideas off of and see if different methodologies come up with similar results.  Here is an example:  Often IBD will say such and such stock is forming a particular pattern (say cup with handle) and give a buy point for a breakout.  In IBD world this is a growth stock primed and ready for big gains.  I will then look that stock up on other sites such as Finviz and get a totally different result.  On Finviz it may show a multiple or double top pattern which is not a strong bullish breakout indicator.   I also tend to use TD-Ameritrade’s Think or Swim which also incorporates different studies and algorithms to show trends and predict price movement.  Rarely do all three indicate the same results.  But when they do, I find that more often or not, the trade is successful.

So now, thanks to our groups new found collaborative and online group format, I have a whole host of new authors, sites and platforms to research.

First up, Jesse Stine. 

Until next time . . .

Happy Trading!

Introducing The Nifty Fifty!

Interestingly enough, I have had a couple conversations lately with folks who are either dividend investors and or Bond and CD investors.  I say this because I usually don’t pay much attention to either.  I have been primarily a growth stock and momentum investor.  The common theme with all these conversations lately has been interest rates and the volatility of the stock market.

CD investors like rising interest rates.  Dividend investors often do not because they fear that as interest rate investments, like CD’s, rise – folks will sell riskier dividend stocks in favor of safer CD type investments.

This all makes sense but as a growth investor I believe that there is always opportunity out there to take advantage of market conditions.

So what are some of the current market conditions?

With the price of oil falling, the health of the world economy questioned, the likelihood of interest rising, and Fridays drop in the stock market, it’s no wonder investors are nervous.  For many, the stock market is heading into uncharted waters.

They have not experienced an extended bear market.  They have not tried to invest in an environment with rising interest rates.  They have not traded with a market at such high levels of volatility or uncertainty.

But is this another August?  Another Flash Crash, or another beginning to the end of the great bull market?  Is this the start of a great bear market?

That is hard to say.

There are a lot of unknowns.

However, some things seem to be fairly certain or at least a safe bet.  For instance:

  • The Federal Reserve is expected to raise rates this week. Some pundits out there are trying to stir the fear pot by saying the Fed may also announce an aggressive series of rate hikes or raise them too much too quickly. Trust me when I say this. Don’t believe them. Since when has the Fed been anything but dovish? It has taken them this long to get around to raising the rates just once. The last thing they are going to do is raise too much or lock themselves into a series of guaranteed rate hikes. They are going to make their announcement, maybe raise a quarter point, and take a wait and see approach dependent on economic and market conditions.
  • There is also a glut of oil keeping prices down. This is partly due to over production and a self-imposed price war, but it is also due to weak demand. This weak demand is often perceived as a sign of a weak global economy, which has investors worried. Add to this the fact that Iran, thanks to the arms treaty, is most likely set to increase production and sell oil on the international markets. The likelihood of oil prices moving significantly north of $40 or $50 is looking less and less likely.
  • The US dollar is strong, and most likely will, remain strong. This will affect international corporate profits as well as imports and exports. However, some industries such as travel, should see favorable market conditions as (US) people look to take advantage of favorable exchange rates.

So what can we, as investors, do to take advantage of this?  For the rest of this post, I am going to avoid talking about CD’s and Bonds and concentrate on individual stocks that happen to pay out dividends.

I started looking for dividend paying stocks that have favorable growth and good cash flow.  In other words, companies with low levels of debt, good sales, and rising EPS estimates.  The theory here is that hopefully at least some of these will navigate this uncertain market with better than average results.

I ran a screen which gave me a watch list of 50 stocks.  I’m calling it my Nifty Fifty.   For this list I used FINVIZ and I have taken a screen shot of the filters I used.

Finviz Nifty Fifty

Should the Fed raise rates, I will keep a running tally on the side bar over the course of the next year to see how they do.

Here is the list and some of the breakdowns.  As you will see, it is a fairly diverse list of companies.

Nifty Fifty by sector

No. Ticker Company
1 ABAX Abaxis, Inc.
2 ACET Aceto Corp.
3 AMAT Applied Materials, Inc.
4 AOS AO Smith Corp.
5 ARMH ARM Holdings plc
6 ASML ASML Holding NV
7 ATVI Activision Blizzard, Inc.
8 AYI Acuity Brands, Inc.
9 BRCD Brocade Communications Systems, Inc.
10 CMN Cantel Medical Corp.
11 COLM Columbia Sportswear Company
12 CPLA Capella Education Co.
13 CSCO Cisco Systems, Inc.
14 DL China Distance Education Holdings Limited
15 EBIX Ebix Inc.
16 ENSG The Ensign Group, Inc.
17 EXPO Exponent Inc.
18 FAST Fastenal Company
19 FDS FactSet Research Systems Inc.
20 GNTX Gentex Corp.
21 HEI HEICO Corporation
22 IIIN Insteel Industries Inc.
23 INFY Infosys Limited
24 KFRC Kforce Inc.
25 KFY Korn/Ferry International
26 KNX Knight Transportation Inc.
27 LMAT LeMaitre Vascular, Inc.
28 LRCX Lam Research Corporation
29 LSTR Landstar System Inc.
30 MGEE MGE Energy Inc.
31 MLM Martin Marietta Materials, Inc.
32 NICE NICE Systems Ltd.
33 NKE NIKE, Inc.
34 NTES NetEase, Inc.
35 NVDA NVIDIA Corporation
36 PAC Grupo Aeroportuario del Pacifico, S.A.B. de C.V.
37 QIWI Qiwi plc
38 RECN Resources Connection Inc.
39 RHI Robert Half International Inc.
40 SNA Snap-on Incorporated
41 SSD Simpson Manufacturing Co., Inc.
42 SWKS Skyworks Solutions Inc.
43 TW Towers Watson & Co.
44 TYPE Monotype Imaging Holdings Inc.
45 UFPI Universal Forest Products Inc.
46 USPH US Physical Therapy Inc.
47 VMC Vulcan Materials Company
48 WAB Westinghouse Air Brake Technologies Corporation
49 WIT Wipro Ltd.
50 WSO Watsco Inc.

Since I tend to follow IBD stocks, I ran the Nifty Fifty against the past 3 months’ worth of IBD watch lists and came up with a short list to track.  I will concentrate my first follow up post of the Nifty Fifty based on these IBD related stocks.

TICKER NAME
ACET Aceto Corp.
ATVI Activision Blizzard, Inc.
AYI Acuity Brands, Inc.
AOS AO Smith Corp.
ARMH ARM Holdings plc
CMN Cantel Medical Corp.
CSCO Cisco Systems, Inc.
COLM Columbia Sportswear Company
EBIX Ebix Inc.
FDS FactSet Research Systems Inc.
PAC Grupo Aeroportuario del Pacifico, S.A.B. de C.V.
INFY Infosys Limited
KFRC Kforce Inc.
LMAT LeMaitre Vascular, Inc.
MLM Martin Marietta Materials, Inc.
NTES NetEase, Inc.
NICE NICE Systems Ltd.
NKE NIKE, Inc.
RHI Robert Half International Inc.
SWKS Skyworks Solutions Inc.
UFPI Universal Forest Products Inc.

As always, these are watch lists which warrant further research.  I would be interested in hearing back from readers what they think about any of the listed companies and current market conditions.

Tick Tock

Tick Tock

Just about anybody who actively exchanges air molecules on a daily basis knows who, or rather what, Apple is. They probably also know Apple just released their newest and greatest next big thing, the Apple Watch. All the buzz is about the many cool designs available, the really cool tech built into it, and the really cool profit expectations the company may or may not get as a result of said sales.

Too bad it will not count one cent towards the earnings report Apple is scheduled to release Monday evening nor will we probably hear how many watches Apple has actually sold.

So the real meat and potatoes of Apple’s report will be on earnings, and expectations.

Will sales of the iPhone exceed expectations?

Will Apple blow past earnings?

Will Apple continue their repurchase program and expectations of giving back to investors in the form of a dividend?

If so, how much?

For the record, I am still on the fence about Apple. I think post-holiday sales of the iPhone line and continued penetration into the China mobile market will enable Apple to, at the very least, meet this quarters expectations. Plus, how often has Apple missed estimates?  Especially their own guidance.  I do how ever think, as was pointed out in a recent IBD article, that iPhone sales are seen to be declining and the big question will be if future sales in China, and the watch, is good enough to make up the difference.

The other thing investors have to look forward to is increases in the share repurchase program and the corporate dividend. If either one does not live up to investor expectations, then the continued upside of Apple stock is, IMHO, limited.

I’m not saying that Apple is going to miss estimates, but I think then clock is ticking regarding their sustainability of exceeding expectations.

Believe it or not, Apple is not the only company reporting this week.

I have some other good quality stocks worth a watch and quite possibly a bright investing future.

To start, I will focus on areas and companies where I see a trend.

Continuing with my low fuel cost boosting auto and air transports . . .

  • JBLU
  • SAVE
  • SPR
  • HAR (they make stuff for cars)
  • THRM (they report next week – but worth mentioning)
  • ATHM (they don’t report this week, or next, but they are garnering lots of attention regarding a possible breakout candidate)

Continuing with my healthcare related theme(s) . . .

  • AET
  • ANTM
  • ESRX
  • CAH
  • ABC
  • CVS
  • LPNT
  • ADUS
  • HOLX

And last but not least . . .

  • RDWR (it is the only tech/security related stock I am actively watching this week)
  • MA (recently allowed to do business in China and reports this week)
  • LNKD (reports this week and is IMHO the only internet portal stock worth watching)

As always,

Good luck and happy trading!