Search

Plummeting prices last year brought many stocks down 50% or more, so that their yields now look extraordinarily high. My database now shows 63 stocks with annual yields of 20% or more. But there’s something wrong with these stocks--business at every one of these high-yielding firms is faltering. The stocks’ plunges tell us that. And while the yields may look high today, they’re based on the past 12 months. If business shrinks, the dividend will shrink more. And if the business shrinks, the stock price may fall further, too. All in all, chasing these super-high yields is a dangerous game, suited only for professionals who can determine when the selling has been overdone and when the dividend is secure.

Every so often, I compile the responses to the survey at the bottom of each issue of Cabot Wealth Advisory and from our welcome survey, which is sent to new subscribers. This week, it was time to read the results and there were some very interesting responses. Most responses were complimentary and some contained specific questions or requests for information, which is what I’m going to address today.

As my two daughters reconnected with old friends, it slowly became clear to me that many of these young people, mainly college-educated, are unemployed, and about this I have a few thoughts. One, times are tough. Two, many of these young adults have skills that are rather loosely defined. When the economy was booming, their liberal arts degrees might have been the ticket to many types of employment, but now their prospects are bleak. Three, people will now keep their jobs longer. In the recent boom years, job-hopping became fashionable. Now, just as the trading-up of houses is history, so is job-hopping. Four, vocational training is on the upswing, as people young and old looking to improve their employment prospects take classes to learn marketable skills.

In preparation for today’s Cabot Wealth Advisory, I went back and read our in-house recap of a recent survey we sent you. While it was expressed a few different ways, the most common response was some form of “Help me make money by helping me know when to buy, sell, be in and out of the market ... " and so on. Today I want to give you 10 nuggets to put in your investing toolkit.

Forecasts were all gloom and doom for Black Friday, with the media predicting a huge pullback in consumer spending. But on Monday, numbers were released showing that shoppers had actually increased their spending over the same period last year. Many media outlets are still predicting less shopping in the weeks before the holidays and spending was way down leading up to Black Friday, meaning the boost may not do much to help ailing retailers.

A team of reporters from Reuters calculated how much the world’s investment banks had disclosed writing down from derivatives in the past year, from the third quarter of 2007 through the second quarter in 2008, ending July 31. The total? $404 billion. In just four quarters, Wall Street wiped out its previous 10 years of profits. Even the airlines aren’t that bad.

Every now and again I like to do a question and answer issue of Cabot Wealth Advisory--we editors at Cabot spend hours each week answering subscriber questions, so we have a large pool to choose from. I think it’s a good idea to share some of these questions with everyone, as much can be learned from a good question and a good answer.

Rather than give the same old big advice (buy quality stocks on reasonable pullbacks, let your winners run, cut your losers short, and don’t try to go against the trend of the market) I’m going to recommend three small changes that you might actually be able to implement. And a successful small change is much better for you (both financially and emotionally) than a big change that you can’t make happen.

I have always believed that cutting losses short is, by far, the #1 rule when investing in fast-moving growth stocks. So much so that my stops are often less than 10%, even 5%, as I try to buy a leader near a logical support level.

The broader U.S. stock market is having a pullback after a 12% post-election run-up. The S&P 500 is only down about 2.5% from its recent high, and it’s too soon to tell whether it might fall a little more.

The market is healthy and investors should be bullish. For our part, we’re putting one stock back on Buy today. Investors looking to put money to work should also consider these five stocks, which all look healthy and strong today.

The potential for an accelerated timetable for the Fed to raise interest rates and the ongoing Russia-Ukraine situation led to volatility this week. As always, other events and news also moved stocks. In particular, Sea (SE), after bouncing back the previous two weeks, was off sharply on Monday following reports that India has banned its popular mobile hit “Free Fire”. The stock has since recovered half of this pullback to close Wednesday trading at 141.

This feels like one of those markets that you’re not sure you should trust given how volatile it was in February. But the combination of revenue growth, earnings growth and decent charts, especially among growth stocks, suggests it’s best not to try to predict too far into the future. For now, the evidence in front of us favors the bulls.

As expected, America’s central bank, the Federal Reserve, raised its benchmark interest rate 0.75% for the second straight meeting in an effort to beat down inflation that’s been running at a four-decade high.

WHAT TO DO NOW: Continue to put money to work, albeit in a step-by-step fashion. From a top-down perspective, our market timing indicators continue to improve, with all three of our key measures (Trend Lines, Tides, Two-Second) now positive. Individual growth stocks are acting well, though many are still repairing the damage of the past few months. Thus, we’re optimistic, but want to see continued improvement to pull us into a heavily invested position. In the Model Portfolio today, we’re going to buy a half-sized position in Arista Networks (ANET) and add another 3% stake to Duolingo (DUOL), leaving us with around 44% in cash.

With the market on track to post a very nice gain in November, it’s been a good time to just sit back and let most stocks do their thing. Much of this move has been driven by lower yields and peak Fed chatter, with inflation and economic data largely supporting the disinflation and soft-landing scenario.

Whether or not the Fed will ultimately begin to cut rates next spring/early summer remains to be seen, but that’s what the market is currently expecting. We’ll now look to the December 12/13 FOMC meeting (last of the year) for Jerome Powell to repeat his “not thinking about thinking about cuts” shtick.

Explorer stocks gained or held their ground this week as the so-called “Mega-Cap 8” stocks dominate a narrow market for now.

China has become the 20% market – 20% of world GDP and 20% of multinational total revenue. This explains the steady stream of CEOs to China while Washington and Beijing top officials traded insults at a Singapore defense forum.

The Explorer had a good week with Butterfly (BFLY) up 15% and Solid Power (SLDP) up 10% this week. The S&P 500 has risen 8% in 2023 but the market gains are very narrow and concentrated, with the top five stocks accounting for most of the gains.

Consumer prices in April showed inflation pressures remain high but backed off a bit. The consumer price index came in at 4.9%, slightly less than the 5% from March. Not a big deal but a step in the right direction as the below graph highlights.

Electric vehicle (EV) prices and profits are also going down for the most part. Tesla reported $2.5 billion of profits in the first quarter, down from $3.7 billion in the last three months of last year, and $3.3 billion in the first quarter of 2022.