Even a near correction—from the September 14 high to the November 15 close the Standard & Poor’s 500 stock index was down 8.3%–changes the landscape for potential profits. Some stocks that have been hammered will, if the market recovers, show much better gains than will those shares that have held most of their ground.
In deciding what to sell, what to keep, and what to buy you have to decide if you believe in a strong turn to the upside in the market and how far off you think that turn will be. All that, as I wrote in my post http://jubakpicks.com/2012/11/16/volatile-enough-for-ya-what-to-buy-and-sell-as-the-market-vibrates-between-fear-and-hope/ , feeds into your analysis of the opportunity cost of a buy/sell/hold decision.
Shares of CVS Caremark (CVS) have been a good performer for my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ since I added them on November 11, 2011. They held up well in the early part of the decline, actually climbing even after the market as a whole had topped out to a high of $48.88 on October 4, but they’ve fallen 8.98% since then, just about matching the decline on the S&P from its high on September 14. The position is up 14.3% since purchase.
And on November 6 the company reported very positive earnings for the third quarter of 2012. Earnings of 85 cents a share were a penny above consensus. Revenue climbed 13.3% year over year to $30.23 billion, beating the consensus of $30.09. The company even raised guidance for the full year to $3.38 to $3.41 a share versus the consensus of $3.37 a share.
So why am I selling CVS Caremark today?
If you think the first six months of 2013 will see better than currently expected growth in the United States and China, and political relief at some kind of fiscal cliff deal, then I think you want to sell CVS Caremark now to raise cash to buy a stock that offers more upside in a first half of 2013 rally. Shares of CVS Caremark have done well in 2012 because this is a solid story of gains in market share and strong cash flow, but I think solidness is likely to be outstripped in any recovery by gains in more volatile stocks that have dropped more than the market indexes in the recent selling.
And CVS Caremark does have a few potential issues facing it in 2013 that might hurt the stock’s gains in 2013. The company has been churning out very impressive growth in same store sales—up 4.3% in the third quarter. Those growth rates look likely to lose some momentum in 2013 as problems at Walgreen (WAG) that helped propel growth in store traffic move into the past. The pickup in growth that CVS Caremark would get from the problems at Walgreen was one reason that I added the stock to the Jubak’s Picks portfolio in the first place. With that added tailwind starting to fade I calculate a $50 a share target price for CVS Caremark by October 2013.
That’s a potential 11.5% gain from today’s close to my target price. I think that end of the year fears and volatility mean there are stocks that offer better potential gains than that over the first half of 2013. I’m selling CVS Caremark to raise cash for those opportunities that the end of the year will present in my opinion.
Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did not own shares of CVS Caremark as of the end of September. For a full list of the stocks in the fund as of the end of September see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/
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