10 long-term picks for 2013? In this market? You’ve got to be kidding. There’s just too much volatility.
Precisely. Which is why long-term investing can make sense in this market. All that volatility can give you opportunities to buy great long-term stocks when everybody else is—for the moment—running for the hills.
But…and it’s an important “but”… the kind of long-term investing I’m talking about isn’t buy and forget. It’s not even exactly like traditional buy and hold.
I’d call it buy rarely and sell seldom. But do pay attention to the potential for wild swings in a market ruled by central bank cash flows. I don’t think it matters a whole lot whether you use something as traditional as dollar-cost averaging or a more complex system of market timing. The key is to find stocks of good companies that are positioned to ride trends of 10 years or more. You buy more shares when the companies are out of favor. You sell completely when the company shows signs of losing its way or when the trend itself changes. If you want to increase your potential returns, you can sell partial or entire positions when the fundamentals say a stock is overvalued or when technical analysis says momentum is fading.
This is the system behind my December 2008 book Jubak’s Picks (still available used from places like Amazon.com and Powell’s Books (powells.com.)) Since January 2009 I’ve run a portfolio built on this system on http://jubakpicks.com/jubak-picks-50/ . Every year I’ve done an annual update, buying 5 new stocks and selling 5 old picks out of the 50 stock portfolio.
The update for 2013 is a little late this year—May 3—but in this post you’ll find the usual annual five buys and five sells.
And you’ll find something a little different too—a continuation and extension of a list that I introduced into the portfolio in January 2012 Read more
This is a market that encourages short-term thinking even from long-term investors.
In a market supported and driven by central bank cash flows moves are big and sometimes even clear. Right now, for example, the government of Prime Minister Shinzo Abe is determined to weaken the yen. Despite the recent volatility that comes from the criticism of Japanese policy at the meetings of the leaders of the G7 and G20 economies, it’s hard to see this trend not running until the yen hits 100 or 105 to the U.S. dollar. For a month or two or three, buying shares of Japanese exporters makes sense, even if you think the long-term trend in the Japanese economy is down and down some more.
Sure, housing stocks like Pulte Group (PHM) and shares of oil refiners such as Marathon Petroleum (MPC) tied to the mid-continent oil boom in the United States, are up 123% and 93% respectively in the last year, but the trends behind these stocks are still going strong and the market momentum is still with them, so isn’t it worth jumping on board for a while?
Shares in pummeled sectors such as Yingli Green Energy (YGE) in solar or Banco Bilbo Vizcaya (BBVA) among European banks are up 106% and 33%, respectively, in the last three months. Is it too late to pile in? How about adding Trina Solar (TLS), up 56%, or Mediabanca (MB.IM in Milan), up only 19% in three months, on the theory that lightening can strike twice (or more frequently) as these sectors recover.
And don’t forget that the lessons of the volatility of recent years—2011 as an extreme example—and, of the boom and busts of 1999-2000 and 2008-2009—argue to go with the momentum but to be ready to hit the door running.
I think some of this short-term thinking is perfectly appropriate to the nature of the current market. This is a market dominated by central bank cash flows with all the volatility that suggests, for example. And I have advocated adopting short-term strategies such as swing trading around a position as well-suited to this market. And certainly momentum strategies have been alive and well as U.S. and some overseas stocks have raced to new all-time or five-year highs in 2013. (In fact I own both Yingli Green Energy and Banco Bilbao Vizcaya in my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ )
But that doesn’t mean short-term thinking is the only thinking that will turn a profit in this market. In fact the very prevalence of short-term thinking suggests to me that some or many long-term opportunities are going undervalued. By long-term opportunities I don’t mean opportunities like those in the red-hot 3D printing sector—stocks like 3D Systems (DDD), Stratasys (SSYS), and recent IPO the ExOne Company (XONE). Those have been amply recognized by momentum players.
The opportunities I’m talking about are a little further out than this market is interested in seeing at the moment and perhaps a more nuanced story than those of the rise of a manufacturing technology that is 1) like your desktop printer and 2) will revolutionize global manufacturing.
Can I give you five quick examples? Thanks. I knew you’d say Yes. Read more
Deere’s (DE) first quarter fiscal 2013 earnings announced this morning before the market open in New York and the guidance for the rest of the year reminds me—in direction if not in degree–of the earnings Cummins (CMI) reported on February 6. Like Cummins, Deere announced a substantial 25 cents a share earnings surprise—15 cents for Deere if you back out lower than expected tax rates for the quarter. As at Cummins, sales growth didn’t keep up with the earnings surprise. Revenue climbed 11% year over year to $6.79 billion, just slightly ahead of the $6.74 billion Wall Street consensus.
And then, following the earnings announcement, Deere, like Cummins, lowered guidance for the next quarter. Not as drastically as Cummins, which talked of weakness in the first half, but Deere did guide down for the second quarter. The company lowered sales guidance for the next quarter to $9.78 billion from the Wall Street consensus of $9.83 billion. For the full 2013 fiscal year, Deere told analysts to expect 4% revenue growth to annual sales of $35.5 billion. The Wall Street consensus before the call was $35.3 billion. Deere also raised its forecast for 2013 net income to $3.3 billion from the consensus $3.2 billion.
The increase in full-year guidance is pretty much a reflection of the just announced first quarter surprise. Read more
What do you as an investor do with predictions? Even well researched predictions by experienced “predictors” like those at the U.S. National Intelligence Council that produced the recently published Global Tends 2030: Alternative Worlds.
And most challenging of all what do you as an investor do with predictions about which countries will grow most rapidly. I think the default response—put your money into the financial markets in the fastest growing economies—is actually mostly wrong. Or at best it’s the “GDP growth equals market returns” trap. Let me use the recent Global Trends 2030: Alternative Worlds report to explain why I believe that.
By 2030 China will be the world’s leading economic power—with the U.S. second.
The world’s oil producers—especially Russia—will see their influence wane in part because the U.S. will attain energy independence.
For the first time in history—as far as we can know—a majority of the world’s population won’t be impoverished. But half of the world’s population will live in areas with severe shortages of fresh water.
At least 15 countries will be at risk of state failure by 2030—Pakistan, Yemen, Afghanistan, and Uganda among them. Aging populations will slow growth even further in Europe, Japan, South Korea, and Taiwan. China and Brazil will have stepped up to new global roles, and countries that include Colombia, Indonesia, Nigeria, and Turkey will become newly important to the global economy.
Those are some of the conclusions in the recently published Global Trends 2030: Alternative Worlds, a four-year effort by the U.S. National Intelligence Council. (You can get your copy http://www.dni.gov/index.php/about/organization/national-intelligence-council-global-trends/ here in multiple electronic and paper formats.)
Some of the themes—the economic rise of China and the rest of the emerging world, global aging or a scarcity of water, for example–in the study will be familiar to readers of my posts and 2008 book The Jubak Picks (out of print but you can buy a used copy here with http://www.amazon.com/gp/product/0307407810?ie=UTF8&tag=thejubpic-20&linkCode=as2&camp=1789&creative=9325&creativeASIN=0307407810%22%3EThe .)
In other areas—the risk of a computer network attack on global infrastructure that affected millions or the possibility that a global health pandemic could reverse economic globalization—the study raises issues that I haven’t thought about at any length (except in the occasional nightmare.)
But to me as an investor the most useful function of the study is the challenge that it throws down. What, if anything, do I as an investor want to do about these predictions? Read more
My daughter at 11 eats only one flavor of ice cream. She knows chocolate is the best flavor in the world at all times and under all circumstances, so why try anything else?
Me? I’ll go with chocolate fudge brownie one day, mocha chip another. Sometimes mint chip. If I’m at Grom, the closest you can come to Italian gelato in my neighborhood, it’s bacio or stracciatella. And I’m always ready to sign up for a special French vanilla.
I’ve got a similarly eclectic taste when it comes to looking for a good stock—different flavors appeal to me in different markets. In my Tuesday August 7 post http://jubakpicks.com/2012/08/07/buy-good-stocks-in-a-bad-market-is-a-great-strategy-but-what-does-it-mean/ I laid out the reasons behind a good stocks in a bad market strategy and started to sketch in some of the different flavors of good stocks.
I wound up with five flavors: dividend-paying good stocks, good stocks for trading either in swing trades or sector and seasonal trades, stocks so good they go up even when the market goes down, hammered favorites for a rebound, and finally traditionally defined good stocks. I said that I thought it was still too early for flavor five, traditionally defined good stocks, and that I’d talked enough recently about candidates for swing trades (flavor two), but that I would flesh out the other three flavors with some specific stock picks in a Friday post.
Well, it’s Friday and here’s that post. (By the way, this is starting to make me hungry. If this post ends in the middle, it’s because I needed an ice cream break.) Read more