Last week’s Stock Exchange was a discussion of how to find new trading ideas. There are always plenty of names floated, but that is more about media than method. If you missed last week because of the holidays, you might find it useful to catch up.
This week I turn theory into practice. We have new ideas from three members of our panel and an informed abstention from another. We also include ratings for reader requests.
Let’s dig in with the new ideas. As usual, I will conclude with a brief observation.
Value Partners Asia ex-Japan Equity Fund has delivered a 60.7% return since its inception three years ago. In comparison, the MSCI All Counties Asia (ex-Japan) index has returned just 34% over the same period. The fund, which targets what it calls the best-in-class companies in "growth-like" areas of the market, such as information technology and Read More
I have offered a new (free) service to subscribers to our Felix/Oscar update list. You can suggest three favorite stocks and sectors. We will report regularly on the “favorite fifteen” in each category– stocks and sectors—as determined by readers. Sign up with email to “etf at newarc dot com”. Suggestions and comments are welcome. In the tables below, green is a “buy,” yellow a “hold,” and red a “sell.” Each category represents about 1/3 of the underlying universe. Please remember that these are responses to reader requests, not necessarily stocks and sectors that we own. Sign up now to vote your favorite stock or sector onto the list!
This Week— Three New Ideas
This week I’m buying a company I wouldn’t be able to pronounce, Mallinckrodt (MNK) 53.10. REALLY??? 9 consonants and only 3 vowels. This specialty biopharmaceutical has fallen hard, but I’m sensing some “green shoots”.
The current low price represents a multiple bottom hit a couple of times over the last year before rallying. I don’t see a lot of upside in this unless the stock can break the most recent high of about 82. However, what I like about this is that I can run a tight stop loss, with maybe $2 of downside risk vs. $10-15 of upside profit.
J: Did you read the recent NYT article about the company? They are a possible new target in the overpriced drug crusade.
H: You know that I don’t read.
J: How did you know about the consonants and vowels?
H: I watch Vanna every night.
J: Does the drug pricing issue bother you?
H: News often creates dips. I figure out which are worth buying.
J: Last week you highlighted Palo Alto Networks (PANW). That is off to a good start.
H: I still hold it, but with a trailing stop to maintain my profits.
Cypress Semiconductor (CY) caught my eye this week. This one was in a nosedive through the month of October, but has bounced back considerably through the end of the year. Based on the shape of the 200-day moving average, I conclude that we haven’t hit the peak just yet. As usual, I would expect to hold this one only for a short time – maybe 2-4 weeks.
J: For once you have picked a stock where I can almost agree. The valuation is reasonable and the dividend of 3.8% is good. The FAST graph shows the excellent earnings growth and the underlying value.
A: Each week I explain that your earnings and ratios are not good indicators.
J: Have you ever heard of Warren Buffett?
A: There are many ways to make money in stocks. His favorite holding period is forever. I lose interest after a few weeks.
J: Are you concerned about the role of chip stocks is modern devices? The Internet of Things?
A: What I need to know is clear from the stock price and volume – and also my methods for filtering out the noise. You cannot gain my wisdom if you spend your time listening to fools.
I will begin with my responses to reader votes for the favorites list.
My list provides rankings within each zone, as well as the basics about buy, hold, and sell. The list includes the top overall vote getters from our (free) subscription list as well as some new requests I got during the week.
J: I see that the number of stocks keeps changing.
F: The list is quite dynamic. Some of those included did not get a rating last week. I encourage my fans to submit requests.
J: Is that because of your incentive bonus?
F: My principal motivation is to help.
J: Maybe we’ll get some good suggestions about what to include. What is your featured stock for this week?
F: I see promising long-term potential from Shopify (SHOP). I don’t deny there have been ups and downs; however, the stock has been able to sustain its significant gains from late summer of 2016. That kind of durability (as seen in the 50 Day Moving Average) is important to me as I look for long term holdings.
J: This is what we call a “story” stock – no earnings and no history. You are investing on faith alone.
F: As I keep explaining, you are too fussy.
J: I am fussier than you?
F: Yes – when it comes to stock picking.
Here are my ratings for the top reader interests. There are still four open slots, so keep the questions coming.
J: Interesting. What do you have for us this week?
J: What? Are you spending all of your time watching football? Your fantasy league is over.
O: I am trying, but you tell me not to force it when there is nothing new.
O: We often get caught up in the day-to-day when it comes to market moves. Many investors find themselves twisting in the wind without solid methods of their own. It is useful to step back and take a view from the cheap seats.
This article from Bloomberg is a great example. Not only are traders trying to predict what Trump will do in office – they’re shorting companies they think he might blast on Twitter! In this case, we see over $150 million invested in iShares Global Infrastructure ETF (IGF) – presumably anticipating a bipartisan bill to fix up roads and bridges. However, it quickly became clear that IGF was disproportionately composed of utility stocks. Bloomberg’s Eric Balchunas writes:
Infrastructure ETFs seem like the perfect way to play a Trump administration, but the caveat is they are loaded with utility companies, which tend to be vulnerable to rising interest rates…Don’t judge a book by its cover, and don’t judge a thematic ETF by its name.
J: Good point.
O: Over the past few weeks, I’ve written about airlines, REIT hotels, and diversified media. I’m still comfortable with these picks, and I don’t feel any pressure to shoehorn in a new recommendation. I win because I stick with my methods.
Background on the Stock Exchange
Each week Felix and Oscar host a poker game for some of their friends. Since they are all traders they love to discuss their best current ideas before the game starts. They like to call this their “Stock Exchange.” (Check it out for more background). Their methods are excellent, as you know if you have been following the series. Since the time frames and risk profiles differ, so do the stock ideas. You get to be a fly on the wall from my report. I am the only human present, and the only one using any fundamental analysis.
The result? Several expert ideas each week from traders, and a brief comment on the fundamentals from the human investor. The models are named to make it easy to remember their trading personalities. Each week features a different expert or stock.
If you want an opinion about a specific stock or sector, even those we did not mention, just ask! Put questions in the comments. Address them to a specific expert if you wish. Each has a specialty. Who is your favorite? (You can choose me, although my feelings will not be hurt very much if you prefer one of the models).
This week is an interesting implementation of the theory from the last few installments of Stock Exchange. The gang is having no trouble finding ideas, at a time when many others are stymied. That said, Oscar shows the discipline we need in a system. Do not reach for something that does not really fit.
There are plenty of trading ideas, and no need to “stretch” your system.