Buy Low and Sell High
How to Develop the Right Investing Attitude
Leading in Several Growth Sectors: Corning (GLW)
Benefit from the Rapid Growth of 3G: Qualcomm (QCOM)
Buy Low and Sell High
During my decades of experience advising investors and writing about stocks, I have learned many lessons. The first lesson is to buy low and sell high. We have all heard that saying before, but do we always follow it?
I found out very quickly that I couldn’t buy right at the lowest price for a stock and sell when a stock reached its highest point. I sure tried hard, though. After many disappointments, I began to settle for buying near low prices and selling near high prices, realizing that undervalued stocks can move lower than I might imagine, but eventually recover or move higher.
Develop the Right Investing Attitude
What about stock choices that don’t work out?
In the business of investing, even in rapidly advancing stock markets, we are bound to have a few positions in our portfolios that behave badly. Prudent investors, though, learn to deal with their disappointments, knowing that getting it right a majority of the time will lead to good results. Novices, however, tend to let stock losses steer them toward negative attitudes which can then lead to irrational decisions. Experienced investors develop an investment plan and stick with the plan through thick and thin.
Lately I’ve been on a roll. Since mid-November 2012, the stock market has risen steadily, which certainly helps. Most of my stock recommendations have advanced nicely. The exceptions bother me, for sure, but overall, my subscribers and I are beating the stock market indexes and are mighty pleased.
I write the Cabot Benjamin Graham Value Letter and the secret to my success is finding high-quality stocks at bargain prices. I do this by screening … just as Ben Graham prescribed. My screening methodology enables me to whittle my 1,000-stock database down to a few buy candidates.
If you pay attention to the fundamentals, and you buy at reasonable prices, profits will add up quickly!
Speaking of profits, I’m going to boast a little here. My most recent sell recommendations generated very pleasing results!
In the January 2007 issue of Cabot Benjamin Graham Value Letter, I advised my subscribers to buy eBay at my Buy Price of 29.70. On January 25, 2013, I recommended selling eBay at my Sell Target Price of 56.00 for a gain of 86.6% compared to a gain of just 6.1% for the S&P 500 for the same time period.
In the November 2010 issue of Cabot Benjamin Graham Value Letter, I advised my subscribers to buy LKQ Corp. if its stock price fell to my Buy Price of 10.61. Three weeks later, when LKQ declined to 10.61, my subscribers jumped in. On February 8, 2013, I recommended selling LKQ at my Sell Target Price of 23.66 for a gain of 123.0% compared to a gain of just 27.7% for the S&P 500 for the same time period.
In the August 2011 issue of Cabot Benjamin Graham Value Letter, I advised my subscribers to buy Celgene at my Buy Price of 54.11. The stock took off. On March 6, 2013, I recommended selling Celgene at my Sell Target Price of 110.77 for a gain of 104.7% after just 19 months. The S&P gained only 28.6% during the same time period.
My system is simple: buy high-quality stocks when they are undervalued, and sell when the stocks become overvalued. Buy low and sell high—it doesn’t get any simpler!
I’ll be explaining my value investing system in depth at the Cabot Investors Conference in August, and I hope you’re planning to attend. The focus of the Conference is education, and the goal is to make you a stronger and more profitable investor. Cabot subscribers from 19 states and Canada have already registered at the Early Bird rate, which expires Sunday, March 31. If your goal is more profitable investing, click here for all the Conference details.
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Now You Can Beat Wall Street at Their Own Game With Far Less Risk!
Over the past 10 years, Cabot ETF Investing System has earned 156.66%.
Over the same period, the S&P 500 earned just 111.79%.
Which means that if you’d put $100,000 into this system 10 years ago, you’d now have $256,660, having gained nearly $45,000 more than the S&P 500.
Furthermore, you’d have earned these gains with LESS RISK, as you’d have been parked safely in money markets part of the time.
In keeping with my theme of buying low and selling high, I am recommending Corning and Qualcomm these days. Both stocks are currently selling below my buy target prices and both stocks have price to earnings ratios (P/Es) currently less than their 10-year norms. Both companies operate in the technology sector.
The technology sector has underperformed many of the other stock sectors during the past 12 months. I believe tech stocks will perform very well during the next several quarters, because companies need to upgrade their technology to compete more effectively.
If I am right, Corning will advance from its current price to 24.40, a gain of 88% in two to three years. Qualcomm could climb from its current price to 91.80, a gain of 40% in one to two years.
Corning (GLW: Current Price 13.00) with headquarters in Corning, New York, was founded in 1851. The company evolved from an old-line housewares company, known formerly as Corning Glass Works, to a leading maker of liquid crystal display (LCD) panels, fiber optics and emission control equipment.
Corning is operating in several leading growth sectors: making glass for flat-screen TVs, smartphones, tablet computers and other electronic devices; manufacturing fiber optic equipment used by the telecommunications industry; and developing pollution control products to meet new emission standards.
After two years of declining profits, Corning is poised to increase sales and earnings. I expect sales to increase 6% and EPS to climb 14% during the next 12 months ending 3/31/14. New products, such as Gorilla Glass, an extra strong and clear glass, and ultra-thin Willow glass could easily push sales and earnings higher than expected. Fourth-quarter Gorilla Glass sales soared 68%. The innovative glass can now be found in one billion handheld and electronic devices worldwide.
GLW shares sell at a 10% discount to book value, sport a low current P/E of 10.9, and provide a dividend yield of 2.8%. The current P/E of 10.9 is well below GLW’s 10-year average P/E of 12.2. The company’s balance sheet is very strong with low debt and $4.15 per share in cash. GLW’s stock price will likely reach my Minimum Sell Price of 24.40 within one to two years. Corning is medium risk because sales and earnings are volatile.
Qualcomm (QCOM: Current Price = 65.33) designs, manufactures and markets digital wireless telecom products and services based on Code Division Multiple Access (CDMA) technology. Products include global positioning systems (GPS) and integrated circuits and system software for wireless voice and data communications. The company also licenses many of its 5,700+ patents and intellectual property to manufacturers of wireless equipment.
Qualcomm continues to benefit from the rapid growth of 3G (third generation or Tri-Brand 3G) wireless technologies and smartphones in emerging markets, including China. Globally, 85% of wireless networks support 3G technologies.
The next-generation super-fast 4G LTE (Long Term Evolution) technology will be quickly adopted in many parts of the world. Qualcomm is now the leading provider of LTE technology which is expected to reach 560 million customers in 2016 from the current 40 million.
Qualcomm’s integrated circuit chipset, called Snapdragon, helps power Apple’s iPhone 5; Google’s Android-based smartphones, including the popular Samsung Galaxy series; and Microsoft’s new Windows smartphones. Qualcomm’s technology is also used extensively in notebook and tablet computers.
Management believes Qualcomm will continue to achieve large market share gains and therefore raised revenue and earnings guidance for the next several quarters. Sales will likely advance 19% and EPS will climb 18% during the next 12 months.
At 15.7 times latest 12-month EPS, QCOM shares are clearly undervalued. The current P/E of 15.7 is noticeably below GLW’s 10-year average P/E of 17.5. The balance sheet is very solid with no debt and lots of cash to fund product research and expansion projects. QCOM is very low risk.
I will continue to follow Corning and Qualcomm, as well as many other undervalued, high-quality companies in the Cabot Benjamin Graham Value Letter. The Special Feature section of next month’s letter, available April 11 to subscribers, will feature Undervalued Canadian Companies. I hope you won’t miss it!
J.Royden Ward Editor of Cabot Benjamin Graham Value Letter
Editor’s Note: You can find additional stocks selling at bargain prices in our new and improved Cabot Benjamin Graham Value Letter. Find out why our subscribers are showering us with compliments!
In every issue, you’ll find Roy’s legendary Maximum Buy and Minimum Sell Prices for over 250 well-known stocks. Click here for details on our value stocks!