Investing Lessons from the Hurricane
Fourteen months ago today, my column here was about the similarities between riding out a hurricane and investing in choppy markets. That time, the storm was named Irene, and New York City (where I live) escaped most of the damage. Today, a new storm named Sandy is just beginning to...
Fourteen months ago today, my column here was about the similarities between riding out a hurricane and investing in choppy markets. That time, the storm was named Irene, and New York City (where I live) escaped most of the damage. Today, a new storm named Sandy is just beginning to affect the city, and we’re still waiting to see how serious it will be. But one constant remains: the market is still volatile and unpredictable. And the lessons I wrote about last time are still relevant to both hurricane preparedness and investing. So if you missed them last time, or are ready for a reminder, I suggest you revisit the article, Four Rules for Investing in Stormy Weather.
One big thing is different today, and that’s that the broad indexes have rallied about 20% from their August 2011 lows and are buzzing around near their all-time highs. And yet, investor sentiment is worse than it was at that bottom. On September 1, 2011, the American Association of Individual Investors (AAII) reported that 38% of their members were bullish, and 32% were bearish. While the market remained choppy and very volatile for the next few months, the August bottom held, and the upward bias of that fall and winter turned into a smooth uptrend in January 2012.
You’d think that 20% gains would make investors greedy and bullish.
But today, the market is near all-time highs, yet only 29.2% of the investors responding to AAII’s survey are bullish. By contrast, 43% expect further downside ahead and are bearish.
Those aren’t the kind of sentiment numbers you see at market tops.
At market tops, investors have been buying stocks hand-over-fist for months, and are giddy at their gains. They’re greedy for more and thus optimistic that they’ll get them.
So while I’m not predicting straight upward action when the market reopens after the hurricane (in fact, it seems unlikely that it will make any progress until after the election), the sentiment picture here just does not say “market top.”
I don’t have a hurricane-related stock for you today, but I did find a good candidate for investors who are still skittish about the market in general.
Bally Technologies, Inc. (BYI) is a leading U.S. provider of gaming equipment and technology, like slot machines and the systems that connect them. What I find most intriguing about this stock is that the company has reported double-digit earnings growth for the last four quarters, and yet the stock price has been nearly unchanged for six months. So it’s a growth and value play, perfect for investors who want to add some growth potential to their portfolio but are worried about further market downside.
Here’s the recommendation of BYI from the latest Investment Digest, written by Upside Editor Richard J. Moroney:
“Bally Technologies earns an Overall Quadrix score of 94, ranking it No. 1 among U.S. gaming stocks and well above the industry average of 56. Shares earn an impressive 95 for both Momentum and Quality. Bally, the world’s oldest maker of slot machines, sells a variety of gaming machines as well as accounting, player-tracking and security solutions to casinos. Product launches, market-share gains, and expansion overseas have lifted results, with four straight quarters of double-digit earnings growth. A recurring revenue stream and strong cash flow bode well for continued growth.
“For fiscal 2013 ending June, rising analyst estimates call for per-share earnings to surge 29% to $3.17. Revenue should climb at least 10% to $969 million. At 15 times expected current-year earnings, Bally trades in line with industry peers—an attractive valuation considering the company’s superior growth potential. Bally is being initiated as a Buy.” - Richard J. Moroney, Upside, October 1, 2012
Wishing you success in your investing and beyond,
Editor of Investment of the Week