Daily Posts Archive
In today’s Wealth Advisory, I’m doing something I’ve never done before—reprinting an entire piece I wrote in Cabot Growth Investor last Wednesday. It doesn’t involve any specific stock advice (that is and always will be for subscribers only), but it details the wild divergences in the market (which are now getting lots of press—even the Wall Street Journal had a big write-up on it Monday), what it means, and how I’m advising people to handle it—I think it’s very timely.
Hostess is making news today as it is issuing $1.23 million in term loans—most of which will go toward paying $905 million in a special dividend to its private shareholders—which I may add, is also more than two times what the buyers paid for this tasty snack business, and triples the company’s debt. According to Bloomberg, these types of deals grew to nearly $16 billion in the second quarter, the highest level in the past 12 months. I’m not making a judgment for or against this action. I just want to make a point that this debt, or leverage recapitalization—spurred by low interest rates—is increasingly becoming a method in which private equity holders get their money back—without selling the business. But it does burden the company with additional debt, which isn’t going to fund company expansion or operations.
Today, I’m writing on a MacBook Pro. This morning I did my morning crossword puzzle on my iPad. All day long, my iPhone is by my side. My home Wi-Fi comes from Apple AirPorts. And some nights, I stream entertainment through my Apple TV. In short, I love Apple products, and I expect to continue using them for many more years. But one of the most important market truisms is this: “The company is not the stock.”
Every year, usually on a Thursday in July, most of the Cabot crew gathers in Salem, jumps into cars and heads north. With bathroom breaks and a stop to purchase refreshing beverages (ahem), the group drives through New Hampshire’s tiny seacoast neck and winds up in Kittery, Maine, at the Chauncey Creek Lobster Pound. There, lobsters, baked beans, coleslaw, steamers, mussels and (importantly) chips are consumed and the store of tissue-restoring beverages is significantly reduced.
The #2 car rental company in China, eHi Car Services (EHIC) has a great trajectory of growth—plus, I like to think it tries harder. After coming public in November 2014, the stock made a little progress in the first four months of the year, but trading...
Long before Greece and China started making the largest headlines every day, investors everywhere thought rising interest rates would cause the next big market decline. (As my father always says, trouble comes from where you least expect it.) Now that Greece has secured a respite from its lenders, interest rates are moving back to the top of investors’ list of things to worry about—especially since Janet Yellen just reiterated last week that the Fed expects to begin raising rates by the end of the year.
GILD has soared from under 20 to over 120 over the past four years, thanks to mushrooming revenues from Sovaldi and Harvoni, the company’s hepatitis C drugs, revenues grew 52% from last year—and that was the slowest revenue growth rate in five quarters!. But the stock is very well known, and some analysts (Goldman Sachs apparently among them) are worried that falling prices and competition will cut into the company’s fat profit margins.
One of my oldest trading rules is simple: Never underestimate a big, mega-cap stock that gaps strongly higher following its quarterly report.
I’m tempted by the idea of finding a stock at the bottom of a correction. I’ve given up on the idea of recognizing a bottom in the market. Market bottoms are idiosyncratic, sometimes bumping along for weeks or months, sometimes forming sharp Vs and other times W-shaped patterns. As I always say, the only people who consistently sell at the top and buy at the bottom are liars.