In this Wall Street Reporter Smart Money interview, Michael Cintolo, editor of Cabot Market Letter and Cabot Top Ten Report, admits that now is not the best market for growth investors. Nevertheless, after screening over 10,000 stocks to find where the big money is flowing, Cintolo can still find growth stocks that offer potential. Cintolo’s top stocks include major gold producers Barrick Gold (NYSE: ABX) and Kinross Gold (NYSE: KGC) and an Indian bank that is hitting new highs even as other emerging markets are cooling off. 1/17/08
Transcript:
WSR: The markets are pretty rough right now. What is an investor to do?
CINTOLO: They are pretty rough out there and everyone has got their system but we decided to keep it simple. We have been, for the most part, defensive since early November really. It doesn’t mean we have been doing nothing, but we have been holding a lot of cash doing some token new buying, and we just think that’s pretty much the best thing to do. We will get into some sectors that are working a little bit later on. But the fact is that when stocks are going down, they are going down and if you are long sight buyer, it usually just pays to be patient to wait and to not predict when something is over sold or too far down or the market is going to bounce, all that sort of thing, and we find it easier to just sort of respect what is going on. Be patient, realize that the storm will pass; it always does, and when it does there will be plenty of opportunities.
WSR: So you’re being very patient, that’s the word that most investors don’t know yet, especially not with a nice five-six year bull-run of stocks, for equities?
CINTOLO: Really since the spring of 2003. That is a question, we have been getting a lot, especially things of unraveled so far in 2008 as this bear market and all this stuff. We are just not big on labels. You can call it a bear market, call it a correction, you can call it a down turn, you can call it a banana, you can call it whatever you want but it’s not going to help -- you make money or protect your capital. You know the important thing is, things are going south, and respect it – let’s stay optimistic. The world isn’t coming to an end. And you start and open up newspapers and realize that they want you to believe that the housing will never come back and all these stuff we have been through down turns before. We will get out of it. And the market is looking six months ahead. So it’s already, way ahead of the head points anyway. You just want to listen to its message. Be patient. And things will turn around.
WSR: Now you are also the editor of the Cabot Top Ten Report. What do subscribers get with the subscription to this newsletter?
CINTOLO: The Cabot Top Ten Report is quite unique, we started it a few years ago. And the goal was and we think it is, the number one source of new stock ideas for the individual investor. I mean everybody wants to know basically where the money is flowing, what is working, what is up and coming and what is falling apart. But they don’t really know how to do it. You are going to surf the web and look for ideas or read a magazine. We have the systematic way. We screen every week. We are screening 10,000 stocks or whatever is in the database. It’s sort of mix between a shorter-term relative performances, a longer-term relative performance. So basically you are going to have good companies, good stocks that are generally under accumulation over longer periods of time but are also getting a lot of money flows recently and really outperforming the market. It’s kind of a combination of the two combined with a few other criteria that we screen for that just highlights where the big money is flowing. So basically subscribers every week, 50 weeks a year, every Monday night they are getting a list of ten stocks that are really the top ten in the market. Then we tell you why the stock is strong. Not just the boiler plate stuff, but what is really going on. We give you a buyer range and that sort of thing. But the real genesis of it is, new stock ideas for the people who want the first three or four steps done for them, wants to know what is working, buy range that sort of thing. Then they make the exact date and decisions themselves.
WSR: So ten new stocks a week, and how do you calculate a buy range? You know that I don’t need you to give away the secret formula, but a lot of people may have found a good stock idea, but don’t know what is the value price to get in and where they should be getting out?
CINTOLO: Right. There is no magic formula. First let me say, it is not ten brand new stocks a week—there are plenty of repeats. So, it’s not like we are going through the entire market after five years. Things hopefully stay strong, that is the theory and that is why they will show up many times. In terms of the buy range, that sort of goes to back to our other publications and where we come from. We can read charts. We are not big in the patterns and predictions and all that stuff. It is just supply and demand, and when there are thousands of mutual funds and pension funds and what not going for a stock, and you can see it in the chart, and you often know how stocks, at least leaders, tend to act. So we know lot of these stocks are little high so there is nothing wrong with saying straightening at 60 but try to get it at 57 or 56. And if you don’t, you don’t, there will be another train leaving the station, but we found out that a lot of them do. They do pull back over the next week or two and you immediately get them on sale.
WSR: You mean use some patience and discipline while buying stocks? That is novel concept.
CINTOLO: Sometimes, there are a lot of times early in the bull move where they want to pull back. And you are almost seeing the opposite of that right now in the market where they won’t rally. I mean things are—I don’t know if you want to say over owned, but there is just relentless selling pressure, and early in a bull move you will see the opposite, there will be relentless buying pressure. So a lot of times, then you can just pretty much go up there and just buy the stocks and make a bit amount of money but as the thing matures and more people get involved you have to be a little bit more selective. That is what we provide.
WSR: Give us few examples of stocks that made it through your screening and have hit a few of your recent Top Ten lists.
CINTOLO: It’s hard of course because most of stocks are heading south but the biggest conviction area we see is gold. And coming from sort of a gross stock background like we do its a little bit like rooting for the Yankees if you’re a Red Sox fan but the gold stocks are powerful. And obviously we all know that gold prices are hitting new highs and it is in the news but what impresses us the most is the volume just this year in the last couple of weeks that has been coming into these stocks as they actually hit new heights that just has been huge and often times have been the biggest weekly volume in years. The biggest one that we like. We have had it as an editor’s choice, which is sort of one we highlight each week is Barrick Gold kind of one of the grand daddies of the industry, and the symbol there is ABX. And then—that just hit new highs last couple of weeks and it was the heaviest weekly volume in years. Maybe ever. And that just tells you that, I don’t about you Ryan, but it is not us buying it is the mutual funds and pension funds and the people who are controlling billions. Another one to look at is Kinross Gold, the symbol there is KGC. And I could get into the mines, and they do have good stories. Earnings are supposed to grow of course as gold prices advance. But our experience with gold stocks is they are going to trade with the price of gold whether they have a good earnings report or something happens to one of their mines. It’s really going to be the price of gold. And so that is what they are keying off of, and that is a good thing these days.
WSR: If you look at the chart of the price of gold and it seems to have made that move from 8 to 900 pretty quickly?
CINTOLO: It’s been explosive. Another positive with these is when you are looking at the Apple’s and Baidu’s, and all the people’s favorite stocks that are kind of now unraveling, I mean these had such huge runs for good reason but they fetched up huge runs in recent years. Now they are up three, four, five, tenfold. Gold really consolidated for more than a year and just broke out in September, now that is a few months ago so it is just beginning. But that’s not—four or five months is not a huge period of time for an advance. It should last a lot longer than that. I think that is what a lot of the funds are the same thing and that is why they are buying it.
WSR: What are the other places that worked, gold seems to be going up because of fear of the value of the dollar and may be a flight to perceived safety, people think gold is a safe asset because it is a commodity, anything else that is really—I don’t want to say bullet proof, but is really holding up well in these testy markets?
CINTOLO: That’s what we like to find. The stuff that holding up well is really gold. Gold can advance when the markets are going down. If the market gets back on firm footing I should say, we will see what happens. But the growth stocks that are holding up, that’s what we love to see because those are really going to spike ahead when the markets gets going. One is surprisingly some foreign stocks, our hold not well, a lot of Chinese names are coming in but Indian stocks surprisingly are going up in. One is ICIC Bank, the symbol there is IBN. That simply is just the largest bank in India. It’s really not a complicated story, but you know savings deposits in that country are going up and this bank does a lot of things from insurance that are just banking service, credit cards and what not. This is the plan for the growth of India. I mean if you are there, you can say that the emerging market story is over. There is no question these stocks, they can easily come down, because they have had big runs. But we tend to be optimistic we think we are not at the end of some major growth phase we are in middle of it. We think some thing like this will continue to prosper and the stock kind of confronts that. It’s just of its height. It has come down a little bit this weak, but it actually had a new high last week, so encouraging.
WSR: Now when we think of a bank in India, do they do the same kind of banking here that we do? Do they offer mortgages, corporate loans or are they mostly a depository, like a savings and loan kind of place?
CINTOLO: No, they do mostly the same thing. I don’t think their quite as broad as a Citigroup obviously, mainly because of their client tell us, it is going to be as broad in terms of businesses and customers. So, it is more driven by ‘basic stuff’. But with that said it is still—yes it is leveraged to some of the housing markets over there which is great, in India, not so great over here of course, and the other result has been very fast growth. I mean revenues at this company have been up 76.80 and 79% last three quarters, year-over-year. So you can call it a bank but it is really a growth company. That’s how we think of it.
WSR: Absolutely, and that’s why it would hit your Cabot Top Ten list?
CINTOLO: Exactly.
WSR: Have Chinese companies hit a Cabot Top Ten list or are they pulled back too much or are the institutions flooding out of China or just kind of maybe bidding their time?
CINTOLO: I wouldn’t say they are flooding out of it—it’s all perspective. I mean if a stock doubles and then it comes down 25%, the most recent thing it is found 25%, but in perspective it is correction or whatever you want to call it. I will say China right now is trending lower along with everything else. So no Chinese stocks in the last three or four issues really have popped up anything of meaning, and that goes along with the perspecitve of fellow editor Paul Goodwin of the Cabot China & Emerging Markets Report—he is cautious now. I know he is raising some cash and some things aren’t working. I am again long-term optimistic but right now the money is not falling there it is falling in the other areas for the moment anyway. END.
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