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Cree: Winning (and Losing) in Growth Stocks

I don’t know about the future of CREE. I just know that a stock that I owned had a bad day and I sold it.

Stock Market Video

Winning (and Losing) Big in Growth Stocks

This Week’s Fortune Cookie

In Case You Missed It


In this week’s Stock Market Video I discussed the market’s lumpy start to the week and the sudden free-fall on Thursday. It’s always concerning to see a big drop in the major indexes, but it’s also a good idea to keep calm and manage the stocks in your portfolio according to tried-and-true rules. Keep your losers and laggards on short leashes and give your winners some room to correct and get going again. I also discuss four well-known leaders that look pretty good right here, as they are resisting the weakness in the market.


Cree: Winning (and Losing) Big in Growth Stocks

On Tuesday, I was smart. Or at least that’s how it felt.

On Tuesday, all the stocks in my personal portfolio were cruising along in positive territory, confirming that I am indeed a brilliant stock picker and a savvy investor.

On Wednesday, I didn’t feel so smart.

That’s because Cree Inc. (CREE), the developer and manufacturer of LED lighting solutions, reported earnings on Tuesday night. In objective terms, it wasn’t a disastrous report; it didn’t show a loss when a profit had been expected, or even major slippage in growth on either the top or bottom lines. In fact, revenue was up 22% year-over-year and earnings were up 52%.

But analysts had expected the company’s future guidance to come in around 43 cents per share for the third calendar quarter, with revenue at $398.4 million. And that made the actual guidance ($380–$400 million in revenue and EPS of $0.36 to $0.41) look a trifle weak.

Analysts piled in, lowering their price targets and downgrading their ratings for the stock.

By the time the dust settled, CREE was down from its Tuesday close of 75.76 to 55.93 at the close on Thursday. That’s quite a haircut, and some market commentators are already saying that CREE is oversold and should be bought.

Other are saying that the stock is dead and should be avoided like a flattened skunk on the freeway.
I don’t know about the future of CREE. I just know that a stock that I owned had a bad day and I sold it.
Nobody ever said that being a growth investor was easy. You need to be able to absorb the occasional left hook to the jaw … and then forget about it.
Remember, CREE had a run that started at 22 in July 2012 and soared to 75 before it finally got cut off at the knees.

And that’s exactly the kind of rally that keeps me interested as a growth investor.

I count on my sell disciplines to help me cut my losses short, which allows me to enjoy the outsized gains that make a winning portfolio. It only takes a few big winners to deliver a winning year.

And if it isn’t CREE this year, which it looks like it won’t, there will plenty of chances.

If you’d like some help finding great growth stocks, you might consider one of Cabot’s growth advisories like Cabot Market Letter, Cabot Top Ten Trader or Cabot China & Emerging Markets Report.

Click here to see what they’re all about.


Here’s this week’s Fortune Cookie. Remember, you can always view all previous Contrary Opinion buttons here.

Fortune Cookie, Paul Goodwin, Cree

Tim’s Comment: This is a lesson that gets learned the hard way. It is traditionally attributed to John Maynard Keynes, who, in 1920, had been trading currencies on margin and was wiped out when the market acted contrary to his “rational” convictions. In fact, it’s a lot more recent than that, but the sentiment is sound. We think it’s bad policy to bet against the market. The Jesse Livermore inscription on our office mantel says it all: “Markets are never wrong; opinions are.”

Paul’s Comment: There’s a real temptation to try to outthink the market, especially when it’s driven far above or below its moving averages. People want to bet on a reversion to the mean. And that reversion will happen, eventually. But bets on the market always have dates involved, and the market can stay “crazy high” or “crazy low” well past the time when it wipes out your investment. It’s better to follow markets, not predict them.


In case you didn’t get a chance to read all the issues of Cabot Wealth Advisory this week and want to catch up on any investing and stock tips you might have missed, there are links below to each issue.

Cabot Wealth Advisory 8/12/13 — Delayed Gratification and Investing

Cabot ETF Investing Systems guru Robin Carpenter uses this issue to look at fascinating research tying future success in life to a child’s capacity for waiting a little longer to get a promised increase in reward.

Cabot Wealth Advisory 8/13/13 — Important Tips for Successful Investing

Mike Cintolo, editor of Cabot Market Letter, boils growth investing down into 20 essential tips for surviving and thriving in all kinds of markets. Stock discussed: Gilead Sciences (GILD).

Cabot Wealth Advisory 8/15/13 — Tips on Investing in Small-Cap Stocks

Tom Garrity, the research wizard behind Cabot Small-Cap Confidential, gives some very feet-on-the-ground tips to help investors who want to play in the exciting world of small-cap stocks, including some answers to FAQs.

Have a great weekend,

Paul Goodwin

Editor of Cabot China & Emerging Markets Report

and Cabot Wealth Advisory


Paul Goodwin is a news writer for Cabot’s free e-newsletter, Wall Street’s Best Daily.