Last week we highlighted a rare consensus among our models and our guest expert. The result was a very successful pick. Readers have often asked why there is so much disagreement among our models. The essential reason is simple. Each has a different method, and they rarely align.
This week there is no consensus, but several good ideas and plenty of spirited debate.
Our last Stock Exchange, Four Thumbs Up for Nvidia, featured guest expert Cody Willard who joined three of the gang in recommending Nvidia (NVDA). It was the most popular article in our series. We hope that some readers (after doing their own checking) joined in the gain. Some may wonder whether we took profits. Not yet. All the models are still holding, as is Cody. (The offer for a free month of Trading with Cody has been extended).
Philip Carret was an investor and founder of Pioneer Fund, one of the first mutual funds in the United States. Carret ran the mutual fund for 55 years, during which time an investment of $10,000 became $8 million. That suggests he achieved a compound annual return of nearly 13% for his investors. Q1 2021 hedge Read More
Let’s turn to this week’s ideas.
This Week – Experts Disagree on Some Big Names.
Few stocks are more controversial than Valeant Pharmaceuticals (VRX). Felix is undeterred.
Felix: My newest holding, (VRX) is already paying off. Sure, the chart here doesn’t look like much. At the same time, this position has grown 20% in the week since we first bought in. That small blip in mid-May goes a long way.
Adding this position as part of my long-term portfolio has some sizeable advantages. The odd combination of volatility and a relatively flat trend line create an opportunity for me to monitor growth over months, and pick an exit point at my leisure.
J: I can hardly see the “blip in May.” How about a shorter time frame on the chart?
F: That might be better, but you can see it–on a percentage basis.
J: Do you understand the controversy behind this stock? It is a “poster child” for unfair drug pricing. It was the subject of a famous impromptu CNBC debate between Bill Ackman and Carl Icahn. More recently, Ackman has bailed out on this investment. Are you smarter than they are?
F: Who are these people?
J: They are a couple of the biggest fund managers. People invest billions with them.
F: Do you mean that humans are less effective at evaluating results than us models?
J: I am merely noting that the big-name experts do not like this one.
F: What do you see with your “Chuck Carnevale”analysis? You swear by his methods.
J: It is amazing. The stock has gone through a huge swing.
F: Does that mean you like my pick?
J: If the earnings can be believed – and that is the key question – it might be a solid choice.
F: That is weak praise.
J: It is the best I can do right now. At least you are not recommending it at a point of wild over-valuation.
Road Runner: Take-Two Interactive (TTWO) is my pick of the week. This chart would cause a lot of trepidation for most investors. Not only is the stock trading at all-time highs, but it’s reached this point after nearly a full year of consecutive growth.
My logic here is straightforward: the stock is hotter now than it has been for most of 2017. I’m holding out here for maybe a month, hoping the latest big move lasts just a bit longer.
J: Your method is to buy stocks at the bottom of an upward-sloping channel. I don’t see it here.
RR: You need to look more closely.
J: I have asked you to draw the channel on the chart.
RR: As I have explained before, I cannot draw!
J: Fair enough. We’ll try to improve that feature.
RR: Beep, beep.
J: Meanwhile, the fundamentals do not support this choice. It looks like another of your Wile E. Coyote moments.
RR: I have done this before. There is a simple key: Do not overstay your welcome.
Oscar: I’m back on Bloomin’ Brands (BLMN), along with the rest of the Restaurants sector. Regular readers might remember I picked this one in mid-March. Let’s review what’s happened between then and now.
After a big jump in price in early March, I bought into BLMN and other restaurants. My usual timeframe is between two and four weeks, so I could enjoy a remarkable increase in price before exiting the position around mid-April. The latest swing to the downside convinced me to give the sector another look.
J: Does this have anything to do with golf? The Tournament Players Championship? You probably have fond memories of Greg Norman.
O: I definitely was a fan.
J: Did you know that he was not a big endorser of Outback Steakhouse? His company sold wine to them.
O: Hmm. Well, it is still a good example of an interesting restaurant stock.
J: At least it is not horribly overpriced like so many of your ideas. It even has a dividend. What about your responses to reader questions? Is Oscar also paying attention?
F and O: Yes, and we welcome more reader requests. Our fans should know that Jeff gives us an incentive payment when we get more followers.
Holmes: This week, I see value in Omnicom Group (OMC). As you can see by the 50-day moving average, the price has been steadily dropping all year. In and of itself, I wouldn’t necessarily call that an opportunity for investment. Let’s double check the chart here, and I’ll explain my angle.
I view the sharp decline in OMC from mid-April onwards as an overcorrection. Judging on the past week of performance, the market seems to agree with me – it’s just a question of degree. I feel comfortable jumping in at current levels and reevaluating in another two or three weeks.
J: This is another example where the fundamentals mildly disagree. It is not a compelling “buy” but neither is it horrible. There is a reasonable dividend.
H: I may not be around that long! One way or another, this is just a trade for me.
J: I don’t see Athena around this week. Where is she?
H: She said something about “nothing, new – taking another week off.”
J: She is acting more like a diva than a goddess!
Today’s post contrasts sharply with last week’s. It is rare for so many methods to agree. Meanwhile, each of our experts has a strong system.
There are many ways to succeed in trading and investing – and many ways to fail. Consistent, proven methods can be quite different. Using a suite of models helps to identify a range of opportunities.
For new readers, here is a scorecard describing the basic approach of each participant, and also background information.
Stock Exchange Character Guide
|Character||Universe||Style||Average Holding Period||Exit Method||Risk Control|
|Felix||NewArc Stocks||Momentum||66 weeks||Price target||Macro and stops|
|Oscar||“Empirical” Sectors||Momentum||Six weeks||Rotation||Stops|
|Athena||NewArc Stocks||Momentum||One month||Price target||Stops|
|Holmes||NewArc Stocks||Dip-buying Mean reversion||Six weeks||Price target||Macro and stops|
|RoadRunner||NewArc Stocks||Stocks at bottom of rising range||Four weeks||Time||Time|
|Jeff||Everything||Value||One month or long term||Risk signals||Recession risk, financial stress, Macro|
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 usually 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.
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).
We have a new (free) service to subscribers to our Felix/Oscar update list. You can suggest three favorite stocks and sectors. Sign up with email to “etf at newarc dot com”. We keep a running list of all securities our readers recommend. The “favorite fifteen” are top ranking positions according to each respective model. Within that list, green is a “buy,” yellow a “hold,” and red a “sell.” Suggestions and comments are welcome. 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!
Article by Dash Of Insight