Me and Mona Lisa
Visa and MasterCard
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I’ve seen Leonardo da Vinci’s Mona Lisa in the Louvre in Paris … but I enjoyed Marc Chagall’s paintings more.
I’ve been to the Taj Mahal in Agra, India … but I enjoyed a quiet day in Udaipur more.
I’ve seen Michelangelo’s Sistine Chapel in Rome … but I enjoyed the miscellaneous gold relics in the corridors leading to it more.
And I’ve seen the 10-pound jade head of Belize (carved perhaps 1,400 years ago) … but I enjoyed the little clay spiny lobster (with a man’s head inside its mouth) more.
In every case, the popular attractions proved over-hyped (and often over-priced), while the less popular proved more enjoyable and frequently a far better value.
It’s a thought to keep in mind, not only when you’re viewing the world’s greatest art and architecture, but also when you’re buying stocks.
Two weeks ago, Mike Cintolo, editor of Cabot Market Letter and Cabot Top Ten Weekly, drew my attention to an interesting fact.
Of the four stocks hitting new lows on the New York Stock Exchange that day, two were MasterCard (MA) and Visa (V), the kings of the credit card business.
The reason is obvious. Consumers are cutting back on credit. No longer are they leveraging their assets to the hilt, confident that rising home values and automatic cost-of-living wage increases will enable them to pay off their debt in time.
Now, sobered by the drop in real estate values, and fearful that pay increases may be a distant memory, Americans are cutting back … basically rebuilding their balance sheets, which is a good thing. And I think this trend has a long way to go.
So I wouldn’t touch the stocks of MasterCard or Visa with a 10-foot pole.
But here’s the interesting aspect of this story.
On the day that MA and V were hitting new lows, 240 stocks were hitting new highs!
And in the two weeks since then, the buyers have been in control of this market! Breadth has been extremely healthy, and I’ve been telling readers that the new bull market has been born!
Which raises the question …
If consumers are cutting back on buying—as reflected not only by the performance of MasterCard and Visa but also by the housing industry stats and automobile sales—how can we have a new bull market?
And the answer has two parts.
First, the best action now is in stocks of companies that benefit from commercial buying. Technology infrastructure is an especially active area, as technology typically improves productivity.
Second, stocks were undervalued, thanks to the deluge of bad news over the past two years, and when the market is oversold to that degree, it inevitably rebounds.
Many pundits, of course, are saying this is just a rally, and that the U.S. economy is still so bad that the market will roll over and resume its downtrend.
But I disagree. More important, the Cabot market timing indicators, which have proven their value over the past 40 years, disagree. They say this is a new bull market, and it’s time to stop sitting on your hands.
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As to individual stocks, two weeks ago, I told you about JinkoSolar, a Chinese company that claims to be the “world’s leading vertically-integrated PV manufacturer of high quality mono- and multi-crystalline modules, cells, wafers and ingots.”
“There are many other companies doing well in the same sector, and many of them are attractive, too. But JinkoSolar (JKS) stands out for these reasons.
“1. It’s small, with a market cap of just $530 million.
“2. It came public quite recently, in May of this year, so it’s still fairly unknown, which means most potential owners don’t own it yet,
“3. The company turned profitable in 2007 and today it’s growing like the wind. In the second quarter, revenues grew 310% from the prior year to $133 million while earnings surged from nine cents per share to $1.18 per share. After-tax profit margins were 20.1%.”
“4. The stock is strong! After coming public at 11 in May, it dipped to a low of 8, and then began a rocket-ship ride that took it to a high of 30 last week.”
“Since then, JKS has dipped to its 25-day moving average at 24, and if you’re interested, I think you can nibble on a little here. For continuing coverage of the stock, however, I suggest you try a no-risk subscription to Cabot China & Emerging Markets Report, whose editor, Paul Goodwin, is keeping a close eye on the stock.”
Hopefully, you bought some shares of JKS, which hit 32 last Wednesday, for a quick gain of 30%.
And hopefully, you took a subscription to Cabot China & Emerging Markets Report, which will steer you into many more top-performing Chinese stocks, leveraging both the time-tested Cabot investing rules and the awesome power of China’s economic growth.
If you didn’t sign up then, you still have time. Paul has a new issue out this week. Don’t miss it!
Yours in pursuit of wisdom and wealth,
Cabot Wealth Advisory