Archive for the ‘Stocks’ Category

Google – a glimmer of hope?

Tuesday, August 10th, 2010

Google (GOOG) is a stock we’ve liked for a while.  It’s part of a theme that our Williams Inference service highlightedseveral quarters ago:  cloud computing.  That’s the idea that more and more of our computing applications will be housed, not on your desktop’s hard drive, but on the internet, the so-called Cloud.

But since late 2007, when it hit its peak of $747, it has struggled, falling as low as $247.30 in the depths of the financial crisis.  It has since recovered 50% of that loss, but its peers have far-outperformed it.

There may be a glimmer of hope for the stock in that Fortune magazine is just now recognizing the company’s situation, featuring it on the cover of its most-recent issue, shown below.

As I’ve mentioned here before, by the time a company or an issue moves from deep in a publication to the front cover or page, it’s often a sign that the worst is over. 

One piece that’s missing to complete this picture of pessimism is gloom amongst the analysts.  There are 37 who follow the stock, with 86% of them rating it a “buy,” while five say “hold” it.  That’s considerably above the average for all U.S. stocks.  The analysts’ price targets have come down, however.  At the end of 2009, the average price target was $662, while the stock was at $619.  Now, with the stock at $503, the average price target is $625.

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Bernanke talks, market tanks

Wednesday, July 21st, 2010

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The Magazine Cover Phenomenon Strikes Again

Wednesday, June 16th, 2010

It’s uncanny how often this works.  Use magazine covers as a contrary indicator.  Don’t invest with them.  And, for my money, The Economist is one of the best global magazines available.  It makes Time and Business Week look like People magazine, but they’re as susceptible as any in getting to stories late.

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The Importance of Dividends

Monday, May 24th, 2010

Yeah, this is pure coincidence, but I think it proves the point that dividends are important in any market.  Here’s a look at ONEOK (“one oak”) Partners, an energy Limited Partnership.  Since it’s an LP it can foul up your tax reporting as the K-1 from the company will delay your 1040 filing.  These securities are best held in an IRA.

As an aside, there were a couple of important insider buys recently.  The CFO bought $150,000 worth of the stock, while the CEO bought $144,000.  Our insider service, InsiderScore, summed those purchases up as, “top execs make first purchases in nearly a year.”

Here’s a brief description of the company.

Now, here’s the coincidental stuff, which I’ve highlighted.  Notice that the dividend yield–on an annual basis, admittedly–leaves you whole.

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Sell in May and Go Away . . . or not

Friday, May 14th, 2010

This is one of the oldest investment saws out there, and that’s a testimony to its durability.  The Stock Trader’s Almanac–I’m using the 2008 version so it missed out on that horrendous Autumn, and also 2009′s great Summer run–has compiled statistics back to 1950 regarding its Six-Months Switching Strategy.  It found that a $10,000 investment grew to $578,413 by just investing from November – April, but grew to just $341 when invested in all of the May – October periods.  Notice, too, that one would have been ill served by following the strategy over the last two years, so it’s clearly not fool proof.

David Kotok, of Cumberland Advisors, did some work on this phenomenon and discovered that the determining factor–make that A determining factor–is monetary policy, or whether the Fed is easing, tightening, or neutral on the monetary gas pedal–mostly measured by interest rate policy. 

  • If it’s tightening, one should sell in May and go away
  • If it’s easing, one should not sell in May, but stay invested, ceteris parabis
  • If the Fed is neutral–and this seems to be a key, but unstated, conclusion from Cumberland’s work (see the original at the link below)–there are other factors that explain seasonality

Here’s Cumberland’s conclusion:

So, what do we do in 2010?

The Fed is unlikely to raise the targeted Fed Funds rate between May and October this year. They cannot lower it, since it currently is between zero and a quarter of one percent. Therefore, the application of the results of our historical study is hampered by the existence of the zero-interest-rate lower boundary. For this reason, we have to assume the Fed is either neutral or easing, and cannot be sure which applies. We have no history to guide us.

The same logic applies to other markets of the world. When we survey central banks, we find that Japan is unlikely to raise its targeted policy interest rate. It is currently near zero. The UK is also unlikely to raise its policy interest rate. In Europe, we are witnessing a massive easing of credit as the European Central Bank and the European Union create their version of a crisis response. Their policy may be likened to our American TARP and Federal Reserve activities following the failure of Lehman Brothers.

The Federal Reserve’s expansion of international swap lines appears to us to be a form of easing. Granted, it comes in response to the European crisis and the ECB initiative. However, easing is easing, no matter what form it takes.

As a result, we enter the May-October period with the working assumption that the G4 central banks are collectively easing. This should neutralize the negative seasonals in 2010. That is bullish for stock prices.

Here is the complete article.

Ned Davis Research is one of our key investment strategy providers.  (I should probably call them something like a key investment strategy partner, but who’s kidding who:  we write them a check; they send us e-mails).  Every year, NDR puts together a composite of how the year might unfold based on three historic studies:

  • Four-year Presidential cycle
  • 10-year (decennial) cycle
  • Annual seasonality.

Here is a link to the chart.  (Just kidding, Ned & Co. if you’re out scanning the internet for copyright violations).

To avoid getting a hand-slapping from the fine folks at NDR, let me just describe the chart:  sell in May and go away.  The twist that they put on this is that they “don’t fight the tape,” which is to say that they allow their strategy to be guided by various readings and indicators.  They don’t sell just because the calendar gets flipped from April to May.

So far, however, the market seems to be holding the un-edited script that says sell in May and go away.  If we decide to go with this thinking you’ll be the first group–okay, second–to know.  First, we sell out our client accounts, then we put something on the blog.  If you want to be in the first group, you know how to find us.  Click here for starters.

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