All the talk lately is about the much belated return to 5,000 on the Nasdaq, a level not achieved since just prior to the bursting of the Internet bubble in 2000. The tech-heavy index has risen about 15% over the past year and has jumped more than 100% over the past five.  Now shares of the companies in the index trade for 31 times trailing earnings, a premium of 67% to the valuation of the stocks in the S&P 500. You can’t help but wonder if the Nasdaq is in for another tumble. To be fair, things are… Read More

All the talk lately is about the much belated return to 5,000 on the Nasdaq, a level not achieved since just prior to the bursting of the Internet bubble in 2000. The tech-heavy index has risen about 15% over the past year and has jumped more than 100% over the past five.  Now shares of the companies in the index trade for 31 times trailing earnings, a premium of 67% to the valuation of the stocks in the S&P 500. You can’t help but wonder if the Nasdaq is in for another tumble. To be fair, things are not the same as they were in 2000. Back then, the index reached a valuation of 175 times trailing earnings and startup tech companies dominated the price action. Today, tech companies make up just 55% of the largest 100 companies in the index, followed by consumer stocks (27%) and health care (14%). But just because it’s not an obvious bubble does not mean we can sound the all clear. #-ad_banner-# The Bubble Chorus Grows Some notable investors have joined a… Read More

All major U.S. stock indices closed lower for the second consecutive week, led by the broad market S&P 500, which lost 1.6%.  #-ad_banner-#Despite the recent decline, all major indices remain in positive territory for 2015, led by the tech-heavy Nasdaq 100, which is up 3.9%. As long as technology and small-cap issues continue to outperform the broader market, as has been the case thus far this year, I view the recent weakness as a temporary countertrend correction rather than a sustainable decline. Ironically, Friday’s market collapse was triggered by perhaps the… Read More

All major U.S. stock indices closed lower for the second consecutive week, led by the broad market S&P 500, which lost 1.6%.  #-ad_banner-#Despite the recent decline, all major indices remain in positive territory for 2015, led by the tech-heavy Nasdaq 100, which is up 3.9%. As long as technology and small-cap issues continue to outperform the broader market, as has been the case thus far this year, I view the recent weakness as a temporary countertrend correction rather than a sustainable decline. Ironically, Friday’s market collapse was triggered by perhaps the best economic news so far this year. The U.S. economy added 295,000 jobs in February as the unemployment rate declined to 5.5%. On an annual basis, this is the best period of job gains in nearly 15 years.  But a quantitative easing-inspired mindset had traders thinking that good economic news is bad news for U.S. stocks because it will encourage the Federal Reserve to raise interest rates sooner rather than later this year.  I view this as a temporary reaction that should eventually provide a better intermediate-term buying opportunity. At the end of the day, rising… Read More

For the past two years, biotech has been one of the best places to put your money in this bull market. During that time, while the S&P 500 rose roughly 40%, the iShares Nasdaq Biotechnology (NASDAQ: IBB) trounced that impressive gain with a return of more than 125%. #-ad_banner-#But given the boom-or-bust nature of companies in this industry, where so much is dependent on science, trial results, FDA approvals and acquisitions, pinpointing the next breakout star can be tricky. A few weeks ago, I was alerted to a buy in biotechnology firm Pharmacyclics (NASDAQ: PCYC). In addition to showing huge… Read More

For the past two years, biotech has been one of the best places to put your money in this bull market. During that time, while the S&P 500 rose roughly 40%, the iShares Nasdaq Biotechnology (NASDAQ: IBB) trounced that impressive gain with a return of more than 125%. #-ad_banner-#But given the boom-or-bust nature of companies in this industry, where so much is dependent on science, trial results, FDA approvals and acquisitions, pinpointing the next breakout star can be tricky. A few weeks ago, I was alerted to a buy in biotechnology firm Pharmacyclics (NASDAQ: PCYC). In addition to showing huge revenue and earnings growth, the stock scored an amazing 184 out of a possible 200 on one of the most reliable indicators I’ve ever encountered in my portfolio management career. Pharmacyclics is dedicated to developing breakthrough treatments to cure serious life-threatening illnesses while improving quality and duration of life. Its primary product, Imbruvica, treats cancer by disrupting biochemical pathways in cancer cells, and is FDA approved to fight chronic lymphocytic leukemia and mantle cell lymphoma, a rare form of non-Hodgkin’s lymphoma. On Jan. 29, the FDA approved Imbruvica for treating a rare form of blood cancer with no… Read More

Today, I want to tell you about an investing strategy that defies logic. It shouldn’t work based on everything we’ve learned about the stock market. #-ad_banner-#Yet it does. In fact, for over half a century, investors and traders have used this strategy to produce unparalleled results. And no, for those of you who may be wondering, this strategy doesn’t involve options, derivatives or any other obscure financial product. What’s more, what I’m about to show you can be used as part of any general investing strategy — regardless of whether you’re focusing on income, growth, blue chips, small caps or… Read More

Today, I want to tell you about an investing strategy that defies logic. It shouldn’t work based on everything we’ve learned about the stock market. #-ad_banner-#Yet it does. In fact, for over half a century, investors and traders have used this strategy to produce unparalleled results. And no, for those of you who may be wondering, this strategy doesn’t involve options, derivatives or any other obscure financial product. What’s more, what I’m about to show you can be used as part of any general investing strategy — regardless of whether you’re focusing on income, growth, blue chips, small caps or even commodities. Specifically, I’m talking about relative strength investing. Relative strength investing is simply a type of momentum investing. It involves buying the best-performing stocks (relative to the market) and holding them until their momentum changes course. To most investors, especially those considered value investors, this strategy probably sounds ridiculous. After all, most people have heard the phrase “buy low, sell high.” Since relative strength investors buy stocks that are already outperforming, many view this style of investing as counterintuitive. But that’s a mistake — and it’s one many people make when they approach a stock pick. Most… Read More

Trying to perfectly time a bottom in the market, a sector or a stock can make a fool of any of us. Even investing gurus like Warren Buffett rarely try to call one. #-ad_banner-#But that doesn’t mean investors can’t uncover opportunities on the way down. Short-term panic often leads to discounted buys in companies with solid long-term fundamentals. One of my favorite options strategies allows traders to get into stocks at an even cheaper price or book a quick profit if shares turn up. 7 Billion Hungry Mouths and Counting Exceptional global harvests pushed grain… Read More

Trying to perfectly time a bottom in the market, a sector or a stock can make a fool of any of us. Even investing gurus like Warren Buffett rarely try to call one. #-ad_banner-#But that doesn’t mean investors can’t uncover opportunities on the way down. Short-term panic often leads to discounted buys in companies with solid long-term fundamentals. One of my favorite options strategies allows traders to get into stocks at an even cheaper price or book a quick profit if shares turn up. 7 Billion Hungry Mouths and Counting Exceptional global harvests pushed grain prices down to multiyear lows in 2014 and dragged related stocks down. PowerShares DB Agriculture ETF (NYSE: DBA) fell 15% last year from its April high and is now 47% below its 2008 high. Some may be worried about a farm bust like we saw in the 1980s. While another record harvest this year could send prices even lower, the 2014 Farm Act’s safety net provision should prevent massive losses. University of Nebraska economist Brad Luebben expects substantial payments to go out to farmers this year if prices stay low. U.S. farm… Read More

The anomaly I see today has only occurred twice before in the past decade.  #-ad_banner-#The last time this indicator flashed its current reading was at the end of 2009, and within six months, the market had undergone a correction.  The previous time it was even close to this high was in October 2007, when stocks began a 17-month, 57% decline. Needless to say, I’m concerned. Under-promise and over-deliver has been the mantra on Wall Street for the past few years. Companies have done an excellent job setting the earnings bar low so they can leap over it and please investors. Read More

The anomaly I see today has only occurred twice before in the past decade.  #-ad_banner-#The last time this indicator flashed its current reading was at the end of 2009, and within six months, the market had undergone a correction.  The previous time it was even close to this high was in October 2007, when stocks began a 17-month, 57% decline. Needless to say, I’m concerned. Under-promise and over-deliver has been the mantra on Wall Street for the past few years. Companies have done an excellent job setting the earnings bar low so they can leap over it and please investors. But what happens when the bar can’t go any lower? What if valuations are richer than they were in 2007 when the bubble was about to burst? And what if estimates for earnings growth turn negative?  Pepper in an increasing interest rate environment and some global economic stress and you have a recipe for a correction. Now, I’m not forecasting the next recession, but there is cause for concern. Based on my research, I anticipate an 8% pullback in the S&P 500 over the next few months. In addition to using this knowledge to do some proactive portfolio… Read More

  When is bad news seen as good news? When the bad news is not quite as bad as had been feared.   #-ad_banner-#So when beverage maker The Coca-Cola Co. (NYSE: KO) posted flat quarterly results (compared to a year ago) that were still a few pennies ahead of consensus forecasts, shares received a nice 3% one-day pop. Pretty soon, that pop will turn into fizz.   That’s because investors are overlooking a dire warning by management regarding further weakness in the company’s core business. Coke has been a laggard for some time now. Shares have underperformed the S&P 500… Read More

  When is bad news seen as good news? When the bad news is not quite as bad as had been feared.   #-ad_banner-#So when beverage maker The Coca-Cola Co. (NYSE: KO) posted flat quarterly results (compared to a year ago) that were still a few pennies ahead of consensus forecasts, shares received a nice 3% one-day pop. Pretty soon, that pop will turn into fizz.   That’s because investors are overlooking a dire warning by management regarding further weakness in the company’s core business. Coke has been a laggard for some time now. Shares have underperformed the S&P 500 by nearly 24% over the last two years, and the road ahead looks equally daunting.   Coke’s Recent Performance Has Fizzled Coke’s beverage volumes grew 2% in 2013 and 2014, a downshift from the 4% growth rate seen in prior years. Demand for its carbonated beverages has been especially tepid. In fact, sparkling beverages have slid to 73% of total revenues, from 77% in 2009.   While global unit volumes increased 2% in 2014, net sales dropped 2% to $46 billion on a tough pricing environment. Operating income slumped an even deeper 5% as the company waits for its cost-cutting… Read More

No matter how well run a company is, sometimes there is nothing management can do to avoid steep losses. Sometimes these outside forces are so strong that investors write a stock off altogether and wonder if the industry will ever be profitable again. #-ad_banner-#Few industries were hit as hard by the Great Recession as recreational vehicles. The plummeting stock market could not have come at a worse time for baby boomers approaching retirement, and fear over retirement savings caused motorhome shipments to drop more than 50% between 2007 and 2009. Even when gasoline prices fell during the recession, they quickly… Read More

No matter how well run a company is, sometimes there is nothing management can do to avoid steep losses. Sometimes these outside forces are so strong that investors write a stock off altogether and wonder if the industry will ever be profitable again. #-ad_banner-#Few industries were hit as hard by the Great Recession as recreational vehicles. The plummeting stock market could not have come at a worse time for baby boomers approaching retirement, and fear over retirement savings caused motorhome shipments to drop more than 50% between 2007 and 2009. Even when gasoline prices fell during the recession, they quickly recovered, making cross-country trips unrealistic for many Americans. One company has been a symbol of the industry for more than 50 years, but it came close to bankruptcy during the recession. Now shares look ready to move higher as some of the forces that worked against it change in its favor. Back From the Dead and Ready for 2 Strong Catalysts Winnebago Industries (NYSE: WGO) has been a leader in recreational vehicles since 1958. It has been the top-selling motorhome brand every year since 1974, but even its status as an American icon looked like it might not be enough… Read More

All major U.S. indices closed up for the second consecutive week, led by the tech-heavy Nasdaq 100, which gained 3.7%. This puts them all back into positive territory for 2015.  #-ad_banner-#Since late last year, I have been saying that leadership by technology was necessary to propel the broader market to new highs. It looks like we are finally starting to see that. Tech was the strongest sector of the S&P 500 last week, gaining 3.8%.  Energy also made an impressive showing, advancing 2.8%. It has actually outperformed the S&P 500 by 5 basis points since the Jan. 19 Market Outlook,… Read More

All major U.S. indices closed up for the second consecutive week, led by the tech-heavy Nasdaq 100, which gained 3.7%. This puts them all back into positive territory for 2015.  #-ad_banner-#Since late last year, I have been saying that leadership by technology was necessary to propel the broader market to new highs. It looks like we are finally starting to see that. Tech was the strongest sector of the S&P 500 last week, gaining 3.8%.  Energy also made an impressive showing, advancing 2.8%. It has actually outperformed the S&P 500 by 5 basis points since the Jan. 19 Market Outlook, when my ETF-based metric showed energy had the biggest one-week inflow of investor assets. At the time, I said this suggested an “emerging buying opportunity in this unloved and washed-out sector.” Moreover, the latest data shows that, through the end of last week, the biggest increase in sector bet-related investor assets over the past one-month and three-month periods was into energy, which should support further strength in the sector. Tech Leadership is a Good Sign for the Bulls In the Jan. 12 Market Outlook, I pointed out that the sideways price activity in the Nasdaq 100… Read More

One of the most important lessons I learned during my days in the Army was the KISS principle: Keep it simple, stupid. #-ad_banner-#Outside of the military, one of the greatest minds of all time believed in the KISS philosophy, but Albert Einstein expressed the idea in more poetic terms: “Everything should be made as simple as possible, but not simpler.” I bring that same mindset to investment analysis. I want every process to be as simple as possible, but not so simple that I’m leaving out anything important. While I have spent a great deal of time studying complex investment… Read More

One of the most important lessons I learned during my days in the Army was the KISS principle: Keep it simple, stupid. #-ad_banner-#Outside of the military, one of the greatest minds of all time believed in the KISS philosophy, but Albert Einstein expressed the idea in more poetic terms: “Everything should be made as simple as possible, but not simpler.” I bring that same mindset to investment analysis. I want every process to be as simple as possible, but not so simple that I’m leaving out anything important. While I have spent a great deal of time studying complex investment techniques, what I discovered is that the KISS principle applies in investment analysis as well as it did in the military. For example, although I look at complex valuation models, the simple PEG ratio consistently identifies undervalued stocks. The PEG ratio compares the price-to-earnings (P/E) ratio to the growth rate of earnings per share (EPS). A stock is considered fairly valued when the PEG ratio is equal to 1, which means the P/E ratio equals the EPS growth rate. I have found the PEG ratio to be a much more useful tool than other fundamental valuation methods for finding a… Read More