Big Winners From Cabot Top Ten Report
While Cabot Top Ten Report is often seen as being for more aggressive investors, some of its picks have turned out to be great longer-term investments. The key is finding stocks that have appeared multiple times in the Report, often as Editor’s Choice.
One of the best parts of my job is reading emails from readers who take the time to put their own thoughts into words. Today I want to share some of the best.
My article on my trip to the island of Alcatraz, which I concluded with a recommendation of Corrections Corp. of America (NYSE: CXW), brought many interesting replies, three of which follow.
“I am a member of a group of approximately 70 individuals called Las Angelitas. We donate our time to give walking tours of the birthplace of Los Angeles (El Pueblo de Los Angeles Historical Monument which includes Olvera Street). Our main audience is (fourth grade) school children as well as many other grades and various walk-ins from all over the world.
Our focus primarily spans the years from the early Spanish discovery of New Spain (now Mexico) by Cortez in 1519/1521 and specifically Los Angeles as related to the discovery of California from 1542 through the late 1800’s and early 1900’s.
Since we are all very interested in all aspects of Los Angeles/California history and actively follow all of the important people who contributed to the city of Los Angeles, your story of Alcatraz and the involvement of two prominent Los Angeles families (Workman and Temple) was of great interest to me. I also believe our members would also enjoy learning about this aspect of their lives.
We publish a quarterly newsletter, “Las Angelitas del Pueblo Newsletter,” and I would like your permission to include your article in our next publication.
By the way, I have been a subscriber for the last five or more (?) years and have done very well following your various recommendations. I also have suggested to several of my contacts that they subscribe to one or more of your “publications”, and to use their contents as at least a good market investing/educational tool.
Thanking you in advance,
Los Angeles, California
(I gave permission to copy, and thanked L.P. for doing the very valuable work of teaching young people.)
From a resident of our friendly neighbor to the north came this:
“Very interesting article Mr. Lutts, as well from the standpoint of US history as from the financial standpoint.
I enjoyed much learning that such correctional establishments [CXW] existed at all. I always thought that all this messy work was done by the governments themselves. But the idea of “sub-contracting” to a private company seems to make a lot of sense. More and more historically “government-operated” social services are being provided to the public by private companies, here too in Quebec and throughout Canada.
The behavior of the stock, strictly from the analysis point of view seems to indicate exactly what you said in your letter. The stock is likely to bounce around at $27.50 or $28.00 within a few weeks.
Yet, I have a great deal of difficulty to reconcile the results of your observations, my own analysis and the recent sell-off of more than 160,000 shares during the last three months by a couple of insiders at CXW. The sheer number of “sells” from insiders is intriguing by itself, from one hand. On the other hand, if I am not mistaking, there are roughly 124,000 publicly traded shares in total. Things don’t seem to add up.
Although the business of CXW seems to be a great one, this point alone deters me from searching further. Could you comment on that aspect of the situation?
As far as the ability to the correction facilities to keep busy, to do profitable business, looking at it with my process engineering eyes, I have no doubt whatsoever about them getting the “raw material” to process, when referring the history of imprisonment typical to the USA. That being said without prejudice.
Thanks in advance for your kind attention.
I answered Raynald, “There are 125 million shares of CXW, 119 million of which are in public hands. Management’s sale of 160,000 shares may appear troubling to some, but not to us, and here’s why. Our long-held belief is that insider buying is a positive sign, because there’s only one reason insiders buy. Contrarily, there are many reasons insiders sell (diversification, estate planning, to buy more options) and thus it is not necessarily negative.”
Finally from a new reader:
“Alcatraz is part of a National Park! It is federally owned land that is there to preserve the cultural history (whether it be proud or shameful) of our country! It really isn’t necessary for there to be some huge CASINO there! (there aren’t already ENOUGH casinos? Have you been to Vegas or East St. Louis or Northwest Indiana or Tunica, MS, or inland California lately?) The birds that inhabit the island NEED A PLACE TO LIVE. I can’t believe that you don’t understand this! PLEASE DO NOT ADVOCATE DISMANTLING NATIONAL PARK SITES!
Switching gears, here is a friendly and inspirational email from another reader.
“Got your e-mail, and thank you for the info and insight. I do appreciate and deeply acclaim your philosophy of investing.
My so-called area of expertise is in human capital-specifically how to inspire people. Teach them skills to manage one’s mind.
WHEN A MAN THINKETH,
LIKE A STAR HE WINKETH,
TO THE SPIRIT HE LINKETH,
AND TO THE CONSCIOUSNESS HE SINKETH.
If you want inspirational poems on the virtue of investing, I can craft them for you.
That’s all from the mailbag!
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Now on to investing.
Last week I attended a parents’ night at my son’s high school (he’s finishing his sophomore year) designed to inform us what to expect in the battle for college admissions over the next two years. It’s a competitive business, and for the school’s college counselors, an important part of the job is calming anxious parents. Me, I’m not anxious; I’ve been there before. My second daughter graduates from college next week, and the third child’s experience (for me if not for him) will be like rolling off a log. But I listened, and I learned a little.
One of the counselors’ messages to parents was that the goal is not to get your kid into one of the top five colleges in the country. The goal is to find the college that’s a perfect fit for the student. It’s an important point and she made it well.
Similarly, our goal at Cabot is to help you find the investment advisory service(s) that’s best for you. If you want foreign stocks, you need Cabot China & Emerging Markets Report. If you want earth-friendly stocks that are benefiting from the big movement away from polluting fossil fuels and toward all things Green, you need Cabot Green Investor. And if you want our most full-featured growth-oriented advisory service, you need Cabot Market Letter.
Cabot Top Ten Report
But sometimes the distinctions aren’t so clear. Cabot Top Ten Report, for instance, is generally regarded are our most aggressive service and thus best suited to short-term investors. With as many as 10 new names added to the list every week, turnover is usually quick, so our list doesn’t sink under the weight of more than a hundred names. Today the list has 43 names, most of which were added this year.
But there are exceptions, and today I want to write about five of them, because they’re the real champions of the system, and they’re the stocks in which patient investors are likely to derive the greatest profit.
MasterCard (NYSE: MA) appeared in Cabot Top Ten Report on November 5, 2007. At the time, it was trading at 186 and we named it Editor’s Choice, writing this:
“Since coming public in May 2006, MasterCard has wowed the market with impressive sales growth, stunning earnings growth, and growing margins ... the real action is overseas; transactions grew 22% in the Asia-Pacific region, 26% in Europe, 24% in Latin America and a whopping 41% in South Asia, the Middle East and Africa. Going forward, those trends should remain buoyant, as more consumers use credit or debit cards, instead of cash; emerging markets, in particular, should be a big growth engine.
Since then, MasterCard has appeared in Top Ten four more times, and investors who bought back then are up 54%. You could buy now, or on pullbacks to 260.
MasterCard, or course, is a very famous name. But as a stock it has great growth potential because it’s still young.
Gafisa (NYSE: GFA), on the other hand, is unknown to most Americans. It appeared in Cabot Top Ten Report on November 12, 2007, when we wrote:
“Gafisa is Brazil’s leading national homebuilder, a diversified construction company with over 900 completed projects, including houses, housing developments and commercial buildings. ... The big question on Gafisa has been about whether the current slump in housing in the U.S. will prove contagious; being in Brazil might provide immunity and it might not. Revenues increased 11% in 2004, 25% in 2005 and 62% in 2006, and in the long run, the company’s outlook is excellent. “
Back then, Gafisa was selling at 36, and we gave it a buy range of 33-37. Since then, it’s appeared in Cabot Top Ten Report three more times, TWICE as editor’s choice (most recently last week). Readers who bought at the first recommendation would be up 14%, which is a modest gain ... but the future is still bright, and you could buy on the current pullback.
Southwestern Energy (NYSE: SWN) also appeared in Cabot Top Ten Report on November 12, 2007, when it was selling at 26 (split-adjusted). We wrote:
“While oil service stocks are beginning to have a rough go of it, the stocks of energy producers are finding buyers, thanks to new all-time peaks in the price of oil and a rebound in natural gas prices. Southwestern Energy is a big beneficiary, due not just to higher prices, but to much higher production as well. The company’s Fayetteville Shale site saw production more than triple from a year ago, leading to a company-wide 56% jump in oil and natural gas output. Even better, the Fayetteville site is accelerating-production near the end of October was up 30% from the end of July. When you combine higher realized prices (its oil and natural gas sales prices were up 15% and 7%, respectively) with higher production and sound cost controls, you get newly accelerating earnings growth-up 47% and 50% the past two quarters, with an 85% gain expected in the fourth quarter and 43% more expected in ’08. Bottom line: The tide appears to have turned for oil producers, and that will help Southwestern Energy.”
Southwestern has appeared in Cabot Top Ten Report four more times since that November recommendation, and early buyers have a profit of about 70%. It’s still an attractive buy on pullbacks.
Then there’s Companhia Siderurgic (NYSE: SID), the biggest steel company in Brazil, which, appeared in Cabot Top Ten Report on the last day of 2007. (Note that Cabot Top Ten Report recognizes no country boundaries. If you can buy it on a U.S. exchange, and it’s liquid and it’s strong, Cabot Top Ten will find it.) We wrote:
“Founded in 1941 as a strategic national industry, [Companhia Siderurgic] was privatized in 1993. Since then, the company has been expanding and modernizing, while retaining the advantages that it enjoyed as a national asset, including control of its own iron ore sources, electric power from a wholly owned hydroelectric dam, and superb rail and seaport facilities. Recent expansion efforts have included the construction of a new re-bar plant and the development of a complementary concrete business.”
Back then, SID was trading at 90. The stock has appeared twice more in Cabot Top Ten Report, and also split 3-for-1, and readers who bought then are up 60%. SID is still strong, and OK for buying on pullbacks.
Finally, there’s First Solar (NSDQ: FSLR), first recommended in Cabot Top Ten Report on February 19, 2007, when we wrote the following:
“The first solar (photovoltaic) cell was built way back in 1883, and after 114 years of development, the electricity from the devices is still more expensive than electricity produced by burning fossil fuels. But tax incentives, particularly in Germany, have spurred rapid growth in the industry in recent years, and as volumes have grown, technological improvements have continued to lower the cost of a watt of electricity. Today a number of solar stocks are strong, but First Solar is the first to earn a spot in Cabot Top Ten. What makes the company different is its reliance on second-generation thin film technology. Using a proprietary CdTe (cadmium and tellurium) technology, its solar modules produce the same amount of electricity as first-generation technologies used by other manufacturers, while using only 1% of the silicon, which is in tight supply! As a result, cost per watt is lower. First Solar’s modules are designed for use in large-scale grid-connected products, and its goal is to become, by 2010, the first solar module manufacturer to offer a solar solution that competes with the price of retail electricity on a non-subsidized basis. What made the stock pop last week, however, were the superb fourth quarter results”
Back then, First Solar was trading at 45. It’s appeared in Cabot Top Ten Report eight more times, and subscribers who bought on the original recommendation are up 525%.
But if you missed First Solar, what then? I say buy a little now. The company is still the leader, both fundamentally and chart-wise. And the company is targeting pricing parity in selected electric power locations by 2010.
Finally, you should pay attention to any stock that has repeat appearances in Cabot Top Ten Report. History proves that these are the big long-term winners.
Editor’s Note: Every Monday, Cabot Top Ten Report gives subscribers expert guidance on investing in the market’s strongest stocks. We tell you what to buy, when to buy it, and when to sell it, and the results are excellent profits, both short-term and long-term.
To get started with a no-risk trial subscription, simply click the link below.
Yours in pursuit of wisdom and wealth,
Cabot Wealth Advisory
P.S. If you wish to discuss this or any other issue of Cabot Wealth Advisory with fellow Cabot subscribers, head over to the Cabot Forum, http://www.cabot.net/forum.