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Growth Investor
Helping Investors Build Wealth Since 1970

Model Portfolio Update - Issue 1338

After moving from about 20% invested during the depths of this year’s selloff to 60% invested two weeks ago, the Model Portfolio remains in a wait-and-see mode. As we wrote on page 1, the biggest thing we want to see is growth stocks hitting new highs. You can evaluate that through some top-down measures (such as the IBD 85-85 Index), but you can also use the action of your own growth stocks as an important feedback mechanism. If all your stocks are racing higher, there’s a good chance the bull move is for real and you can continue putting more money to work. Conversely, if you buy five new stocks and four of them are showing you losses a month later, you should take it slow.

Looking at our stocks, we’re pleased with their action; most have moved higher, with our newer purchases in the black. That’s a positive, yet none have gotten going to any big degree—PayPal looked encouraging before being quickly yanked back down on some competition from Apple (more on page 3). So we’re mostly content to watch and wait for the bulls to truly take control.

Notice we said mostly content. We’re certainly not going to jump in with both feet before growth stocks show some power, but given the “blastoff” measure discussed on page 1, we’re giving ourselves leeway to add one more stock should the market produce some low-risk entry points.

BUY—Facebook (FB 115)—For many weeks, we’ve seen reports about Facebook’s plans to make its Messenger service a business-to-consumer tool, allowing customers to get information and even order products through Messenger. And that future appears to be closer than most expected; reports this week suggest a new version of Messenger will allow payments to merchants, in addition to normal chat functions. Of course, Facebook isn’t the only company aiming to do that, but the difference is that the firm’s huge user base (800 million users!) is sure to attract retailers eager to make it as easy as possible to order their goods online. As for the stock, FB continues to crawl higher on modest volume, which isn’t ideal action, but shares remain above their key moving averages and are just a stone’s throw from new high ground. Hold if you own some, and if you don’t, try to buy on any weakness toward 110.