For all the technical minded investors or traders, you should put Enzo Biochem (ENZ) on your radar. The stock is near to breaking through a level which it touched recently. If it surpasses around the $6.30 point, the next stop could be between $7 and $8 per share. Keep your eye on this stock to see if it can keep it’s positive momentum. Remember, the trend is your friend.
Some of us seek truth in our lives, and other seek truth in the market. What do you believe, why do you believe it and what evidence can you point to affirm your stance? In the market data litter the landscape. Evidence, though it grounded in the past, is everywhere you turn. Though the data points in the market’s history are diverse as the people in the world, one thing is true about the market; the presumption that truth exists, when held by enough people, will make the truth real.
Think about the last point above. Truth within the market can be made by the market. Investors can make things true simply through enough investors believing that certain truth exists. Doesn’t that sound a little wacky? Objective truth and the market do not go hand-in-hand. To illustrate this point, let’s look at points of support and resistance. Technical traders or technical analysts will point to levels of price resistance to describe an index or stock’s current upper-level trading range. They will then turn around and speak of the support levels for what they forecast to be the stock’s lower bound range.
Many people think that technical traders are kind of like snake oil salesmen. They talk a good game, but what they speak of is a bunch of nonsense. For one, what they’re point to is not grounded in the reality of financial performance metrics or other more tangible company performance data. I believe your typical technical trader would agree with that statement. Yet, the idea of the reality of financial metrics does matter in this situation.
When speaking about ‘the market’ we are speaking about a ‘collective conscious’ or a ‘hive mind’. Market activity is the manifestation of beliefs through executed trades. When enough investors buy into the belief that certain patterns signify where a resistance and support level are located for an index or stock, then such notions become very real. The market’s belief dictates the market’s truth.
The world of the market is akin to a philosopher king’s weighted democracy. Anyone with dollar can weigh in on what is true or untrue and good or bad, but certain people have more power in deciding what becomes the general consensus (investors with more money).
As a young investor, the ideas expressed above did not set with me. It wasn’t something I even thought about. I was trained in a more classical approach to the market that focused on fundamentals. While training around fundamentals is important and vital to being a good investor, it leaves out the psychological component of the market.
The mind of the market can drive fundamentally expensive assets higher and fundamentally discounted assets lower. The goal for any player in the market is to make a positive return on your investment. To do this you must at some point be correct in your decision-making. This ultimately means understanding the mind of the market. To understand the market’s anointing truth is to be on the path of investor success.
Here’s a thought to ponder…If the collective conscious of the market loses faith in the Fed’s (and other central bankers around the world) power to command our economic destiny, where do stock prices go? Do we revert back to 2009? Is the general opinion correct that the Fed has been the main driver of the stock market’s appreciation since the Great Recession? If so, when the faith is lost, where does the market go? Most would say down and I would agree. Yet, how far down and how fast?
All these questions above presuppose the Fed will lose its way and/or a great awakening will occur that will end in a general loss of faith in the Fed. Those are pretty big ideas and they are ideas that are being discussed. Whether they occur or not is a different story. My thought is that if such a situation does come to pass, does this mean that we end up with an S&P 500 index plunging below 1,000 and everyone going into a panic as we saw in ’09?
Thoughts to ponder as we move down the path of investment returns.
Why have and why do so many people continue to migrate to the USA? One reason is because of the belief that life in the USA is superior to where they are coming from. In short, they believe their life will be treated better here in the areas of life that matter most to them. This is no different with money. In general, money migrates to where it feels it will be treated the best given its owner’s desires and risk tolerance.
Large cap dividend stocks are a place where many investors see their money being treated best, given the Federal Reserve’s perpetually low interest rates. The quest for yield has brought a significant share of investors to a realm where risk is much higher than it ever existed in certificate of deposit (CD). Paradoxically, the hive minded investing class finds comfort in the Fed’s new normal of scant borrowing rates. If the market is the only game in town for a decent return, then how bad could the market actually get? We’ve all got to drink to cool-aide or dehydrate. Drink we do.
If the market continues to fail to top the last top seen, how long does the punch drinking party continue before panic strikes and the greater fool theory rapidly unwinds before the eyes of the watching world? To think investors have recovered from skittishness brought on by the last decade’s market crash would be a great error in judgement. One aspect of ‘the new normal’ for investors is bouts of extreme volatility. It becomes almost a self-fulfilling prophecy. Spikes in volatility spark fear, fear sparks further selling and the cycle continues until a rush of bargain buyers convenience themselves the market, and society for that matter, are not doomed.
This is not meant to sound bearish. We live in a time where we’ve convinced ourselves the Fed and other like groups around the world have thrown their best punch and come up wanting. All the while we see Baby-Boomer after Baby-Boomer leave the job market and face the 2nd half of their life. A wave of wealthy individuals that want to live off of the yield of their savings, but do not need to establish themselves, buy new homes, start new families or start up new businesses. The main block of their offspring, the Millennials, have slipped, fallen and then slipped again as they’ve attempted to establish a career. Progress is coming, just at a much slower pace than anticipated.
While growth exists, it’s not comparable to what was seen after the 2nd World War or even the tail end of the last century. We live in a different time. We live with much different demographics. We live with a radically different job market. Over the last eight or so years we heard “Change we can believe in!” For those years and even before that we were in the midst of change we could believe in, yet it wasn’t the change to bring us to some social promise land. It was a change that would reshape the way we see the world, invest and plan for the future.
We’re often told that the market doesn’t reflect the economy and maybe to a certain extent that’s correct. I’m not sure what you or I are supposed to take away from that, besides from abstaining from gloating that the S&P 500 hit a new high. The market is a reflection of something more than itself. The market is a reflection of where money is treated best.
Given all the calamity whether social, political, economic or otherwise, people will migrate over time to where they are treated best and they’ll manage their money the same way. What is the best today might not have been the best yesterday and so on. A six-month teaser rate CD at 7% is a pipe dream today, yet wasn’t in 2006. Best in investing is relative to the current market conditions and those conditions feed off of the multitude of factors influencing the world we all live in.
The bottom line is, no matter how good you swim, you’ll always swim faster with the tide than against the tide and it’s vital to know the difference between the two. Retired people need a constant return on their savings. Savings accounts, CDs and bonds yielding next to nothing and will likely continue to be that way throughout the year and maybe even 2017. Where in this environment is money treated best?
If El Nino results in a winter and spring comparable to that of what was seen in ’97-’98, a good deal of California will experience extreme weather that will result in flooding and other negative outcomes. For insurance companies, such conditions don’t necessarily spell above average, but for disaster service companies the outlook could be quite bright.
ServiceMaster (SERV) is one company that is well footed to benefit from an increase in weather related disasters from El Nino or other sources. The company’s two main operations are its franchise services and Terminix. The franchise portion provides a wide variety of disaster recovery services. For example, when your building is flooded, SERV provides industrial fans and other drying devices to mitigate the damage of water in a commercial or home structure. Terminix is a pest control service provider, which is primed to deal with greater insect and rodent activity based on the impending shift toward a period of more inclement weather.
The basic fact is that if we assume El Nino will bring a break in the drought California has been in for the past 4-5 years, then the changes of local and regional flooding will increase significantly. Whether it is large scale run off of water from hills into homes or simply roofs that have not been tested with a sizable rainfall in years, the potential for flooding in California is much higher than normal because of the extended drought. Flooding translates into increased business for SERV. When disaster strikes, SERV benefits. The stronger the El Nino, the better the business for SERV.
Note – SERV is currently trading near its 52-week high. You may want to watch for a pullback to establish a position within the stock. At the current price, the dividend yield is 1.2% annually.
Disclosure: No Position
Last Friday’s terrorist attacks in Paris were yet another reminder of the way in which the Western world has changed. No matter what Western leaders do or do not do in reaction to the current and future attacks, public and private organizations will take steps to ensure security is maintained and future attacks are thwarted, if possible.
When investing, you are in a sense voting for the services and goods you believe will thrive (be demanded). As the West is dragged further into a war with radical Islam and other malcontents, the need for terrorism deterrents and solutions will be needed within the communities and cities we live in.
Here are some public traded companies that are working to provide anti-terrorism solutions.
- American Science & Engineering (ASEI) – X-ray equipment specifically used by homeland security.
- FLIR Systems (FLIR) – Manufactures and distributes thermal imaging systems, visible-light imaging systems, locater systems, measurement and diagnostic systems and advanced threat-detection solutions.
- Analogic Corporation (ALOG) – Is in the business of making and marketing security technology products, explosive detection systems, and weapon and threat detection aviation security systems, in addition to their medical imaging business.
For a more extensive list of anti-technology stocks, see http://wallstreetnewsnetwork.com/AntiTerrorismStocks.xls
It’s late in the evening and typically I find myself searching for some sort of snack. Tonight, in my mind’s never ending capacity for all things food, I’ve come across a company that you should put on your investing radar. WhiteWave Foods (WWAV) might not sounds familiar, but you’ve probably heard of the company’s brands, particularly if you’re into more of the ‘health’ foods area.
Since it’s inception on the NYSE in the latter part of 2012, WWAV has steadily increased in share price. WWAV has implemented a pretty aggressive acquisition and product development plan from the latter part of the 90’s up until current times. So far things have worked out well.
Here are some very brief observations as an investor looking at WWAV from a 30,000 foot view level…
-The health food trend is very strong. Whole Food, Fresh Market, Sprouts and other similar grocery stores are a reflection to how predominate this trend is throughout society.
-People with money are driving the health food trend. In our current economy, the only area that has shown modest growth is amongst high income earners. Therefore, this group is carrying this trend and has the ability to continue the trend.
-As the Baby Boomers move further into the retirement, they will put a greater focus not only on their health, but in maintaining whatever youth they have. Eating healthy foods will be part of the potion to achieve this goal.
-The observations made above will help WWAV to earn higher margins than your run of the mill food company. While competition will increase, WWAV’s brands have very good exposure and are well established in the market. This will help maintain the company’s momentum and enable WWAV to capitalize on the continuation of the health food trend.
-A company that is successful and well entrenched in a market that is riding an expanding trend may cause WWAV to become a takeover target by a larger company looking to gain exposure in the market.
Put WWAV on your radar, do some research and consider if WWAV is a good fit for your portfolio.
Disclosure: No Position
It’s late summer in California and things are dry. As it turns out, the state is in the midst of a record setting drought. Records kept since 1895 indicate that currently the state is in the worst drought since records started being kept. Where can an investor turn in such times?
The tail end of summer is the most dangerous time in the western part of the U.S. for forest fires. Extreme heat throughout the summer compounded with the complete depletion from water run-off from the prior winter’s snow pack leads to a lot of dry brush. Fire mixed with dry brush is a combination for a big disaster.
Currently, two fires are burning in California. One is in southern California near Azusa and the other is in the foothills in the Sierra Nevada mountain range near the town of Oakhurst.
While no one knows exactly how the remainder of the fire season in California plays out, it’s a safe bet that additional fires will spring up throughout the state before the latter part of fall sets in.
So what investment idea is worth entertaining given the state of the state of California and the rest of the south western U.S.?
A small cap player in the fire fighting world is GelTech (GLTC.OB). Around 201o the company’s product, Fire Ice, made it on the list of approved products for fire fighting with the U.S. Forrest Service.
The company’s stock price is around the range of its 52-week low and has bounced around that range since May. The stock is thinly traded, which could mean large downward or upward swings in price.
If you bet on the idea of a heavy season of California wildfires, it’s quite possible that sales for Fire Ice from GelTech will jump significantly. In such an instance, the ramifications for the stock price could be quite dramatic. Thinly traded stocks that see a sudden surge of interest will experience dramatic price swings.
To see an example of how dramatic the stock price movements can be, look back at GelTech’s stock price around March and April of 2011 (above). The stock price jumped dramatically because of news coverage of the Fire Ice product. As you will see, after the hype subsided the stock’s price quickly came down to Earth, as is expected. This would be a short term trade position.
Chipotle raises its prices and saw store traffic rise in the double digits from a year earlier. Yesterday this news was released by the casual dinning trend setter. This is great news for Chipotle owners, but I believe it’s also a very good overall economic sign.
What should you take away from this information as an investor? If this is the only piece of information you have to go on to gauge the health of the economy, you would probably be bullish. The fact that a price increase did not deter customers from consuming is a very bullish sign. Chipotle didn’t say that they would give you 6% more food for a 6% price increase. No, they raised prices to deal with commodity price increases. The company had not done an across the board price increase in the last three years.
An important point to keep in mind when investing is that many investors look to the prior year to measure a company’s performance. They also look to the prior year when looking at the economy as a whole. Therefore, those that point to 2007 or 2008 and speak of how much better it was then compared to now often miss the main yard marker for investment insight.
Growth from quarter to quarter is important, but where a company was a year ago to where it is now is often a more meaningful measurement.
Year over year activity commands such a spotlight because quarterly comparisons can be mired by seasonality issues. For example, weather has a strong impact on business and consumer behavior. Seasonal sales for events like Christmas and back-to-school time can provide data that is not comparable to previous periods.
I see Chipotle’s results as one broad data set that argues for a a continued bull market.
Disclosure – I’m long Chipotle (CMG)
I’m linking below to a Barron’s article that provides four stocks that have sold-off recently and why you should consider purchasing them. In a bull market sometimes it’s difficult for investors to identify stocks that are ‘discounted’. This article attempts to do just that. Where do you find opportunity in a market that has run for quite an extended period of time? It’s a good question and a difficult question to answer. Leave it to Barron’s to tackle this one…
The list is as follows:
- CREE (LED Light manufacturer)
- Lumber Liquidators (Flooring Company)
- Hibbett Sports (Sporting Goods Store/Chain)
- United Natural Foods (Organic Wholesaler)