Just
a few short weeks ago, the S&P had fallen about 10%, crude oil was
plummeting on a daily basis and Ebola was taking over the world. What a difference a couple weeks make,
with the Dow and S&P closing right at all-time highs and the Nasdaq soaring
to 14-year highs on Friday. Now
that the Fed has finally ended QE3, and maintained their stance that interest
rates will remain low for “a considerable time”…whatever that means, the big
question is, can this stock market continue to rally, and I am under the impression
that it can. However, with stocks
at all-time highs, and having rallied back about 11% over the last couple
weeks, I couldn’t fault you for taking profits and trimming some of your
positions that you don’t feel very strongly about.
One
important reason that stocks and markets move up or down is because of analyst
estimates and opinions. When you
see these upgrades/downgrades, make sure to look at who is making the call, why
they are making the call, and when they are making the call. Remember…what makes a market is when
different people have different opinions, and just because someone has a lot of
letters behind their name, doesn’t mean they know what they are talking
about. Back on September 23, an
analyst at William Blair decided that it would be a good idea to downgrade
retailer, Bed Bath & Beyond (BBBY), from “outperform” to “market perform”
just hours before the company reported Q2 earnings. Now, I don’t care what the stock is, you don’t make a call
in the morning on a stock that reports earnings later that day. For me, that was a clear signal that he
was setting himself up to be wrong.
On his downgrade, I decided to buy Bed Bath prior to earnings (which I
almost never do), and low-and-behold, I sold the stock the next day for a 7.5%
gain as the company beat expectations.
One
bank in particular has a real rough time in 2014…Goldman Sachs. While they are correct on plenty of
market calls, there are some that they are way off on. Early in January, Goldman Sachs
downgraded the entire biotech sector while it was sitting at all-time highs, as
they are known to do. Well, at the
same time, companies like Celgene, Gilead, Biogen, Regeneron and Amgen were
only in the early phases of what is quickly becoming an incredible string of
game-changing successful drugs. I
however, felt that Goldman’s call was ridiculous and knowing the list of drugs
that a company like Gilead had in its pipeline, added more to my position. If you listened to Goldman’s call, you
would have missed out on a 33% rally in the sector, outperforming the S&P
by 24%. While the biotech sector
is red-hot and suffered a down day on Friday, there is still a great amount of
upside in all of the names I mentioned, and would be looking to add on every
pullback. If you don’t want all
the risk that is associated with owning individual names in the biotech sector,
you can buy the IBB (iShares Biotech ETF).
Unfortunately
for Goldman Sachs, I am going to pick on another one of their calls, most
recently when they decided to lower their price target for US crude oil to $75
by the 2nd quarter in 2015, which is now the most bearish bet on the
street. The call came on October
27th, which then sent crude oil to $79.44, its lowest level since
May 2012. While it’s still too
early to tell if they will be right or not, I am betting on the fact that they
will be wrong…again. You see, this
isn’t the first time that Goldman has made a call on crude oil, only to be
wrong. Back in June 2008, with oil
sitting around $125/barrel, Goldman decided to increase their estimate to
$200/barrel. From July through the
end of the year, crude oil proceeded to plummet like never before, falling 70%
from the highs down to $44.60/barrel.
Goldman has also had incorrect calls on crude oil in 2011 and 2012. Had Goldman lowered it’s outlook a few
months ago, then maybe I would be inclined to believe it, but with Goldman
dropping it’s 6 month price target by $15, with crude oil already having fallen
24% in the summer, I am more inclined to believe history will repeat
itself. With that, I added to my
current positions in ConocoPhillips, Kinder Morgan and then opened a new
position in EOG resources.
One
opinion in particular that really affected my portfolio was on October 24, Jim
Cramer ran a segment on his Mad Money show about selling out Palo Alto Networks
(PANW) because it has become to expensive. Cramer has an unbelievable following, and has a major
influence on stock prices, and when he has an entire segment devoted to selling
a stock, well, that stocks is going to get hammered, which is what happened to
PANW the very next day. The stock
closed right near all-time highs o $108.50 that night, only to then sell-off
all the way down to $100, before bouncing back and finishing the day down about
4.5%. For those investors who
couldn’t think for themselves, they ran scared and missed an opportunity. While the stock is still down from
Cramer’s call, Palo Alto closed at its third highest level ever on Friday. One rule of thumb on a Jim Cramer
recommendation is to wait at least three days before making a decision. Had investors done so, they probably
wouldn’t have been so quick to sell (full disclosure, I did not sell any of my
shares in Palo Alto Networks).
Now,
I fully realize that I am giving you MY personal opinion and views on the
markets and particular stocks, but the point is, everyone has their own
opinions, including yourself. The
purpose of this newsletter is to give you various trade/investment ideas,
educate you on what to look for whether technically or fundamentally, and
hopefully make you a little money.
With that said, it is important to do your own research and formulate
your own opinions before buying or selling anything. But it’s also important to know that just because a
“professional” analyst makes a bold prediction, it doesn’t always mean they are
right, in fact, it may mean that you should do the exact opposite.
I
have made some changes to my portfolio over the last couple of weeks, selling
out of Citibank (C) on Friday after they announced a reduction to Q3 that were
reported a few weeks ago due to a legal charge. I, personally, have lost all faith in Citibank management,
and having an 8% gain, I decided to lock it in and move on. I also sold out of Coach (COH) with a
1% loss because it never really rallied off the lows like I expected it to, and
when something doesn’t do what I expect it to, I get out. On October 23, before market-open, I
opened a new position in Celgene (CELG) at $95.20 after they reported monster
earnings, but didn’t react and I saw that as a great chance to get in before
the rally happens. I also took
some profits in Delta Airlines, which I added to on the Ebola outbreak, and
built a new position in Jack In The Box (JACK) on its long-term growth
prospects and possible spin-off of Qdoba.
Lastly, I bought some calls in Microsoft prior to earnings, as a trade,
which I still own.
My current positions: Long
Ford (F), Gilead Sciences (GILD), Starbucks (SBUX), Macy’s (M), Boeing (BA),
Google (GOOGL), Facebook (FB), Delta Airlines (DAL), Biogen Idec (BIIB), Whole
Foods (WFM), Wells Fargo (WFC), General Motors (GM), ConocoPhillips (COP), Kinder
Morgan (KMI), Time Warner (TWX), Palo Alto Networks (PANW), Twitter (TWTR), NXP
Semiconductors (NXPI), Lockheed Martin (LMT), Darden Restaurants (DRI), Celgene
(CELG), long Microsoft (MSFT) November calls, and Jack In The Box (JACK).
Jeff Lewison
No comments:
Post a Comment