by Kyle Woodley | April 4, 2012 11:00 am
One quarter into 2012, and the market’s a far different place than we expected at the end of 2011. The major indices cruised through the first three months, financial stocks were partying — with Bank of America (NYSE:BAC) the unlikely belle of the ball — and high-yielding dividend stocks were shrugged off.
Well, a rising tide lifts all most boats, and many of us at InvestorPlace saw some of our stock and options picks yield pleasantly surprising returns early on. Still, not every decision was a gem, either. But after about three months of market action, it’s time to use the quarter’s end — in the spirit of disclosure — as an opportunity to reflect on some of the calls we’ve made thus far in 2012, for better or worse.
Here’s a look back at some of InvestorPlace’s calls from 2012:
I recently professed my love for Discover Financial Services (NYSE:DFS), so I’ll keep this part short: DFS is up 40% since the beginning of the year (I projected 50% returns for all of 2012), and it still looks attractive on both growth and value bases.
As I mentioned in March’s look back, Ralph Lauren (NYSE:RL) is enjoying some decent gains since my late-January article. The problem is that growth is mostly the same — up 13% then and 15% now, having mostly plateaued since early February. Still, Ralph Lauren is more than doubling the S&P 500 at 28% gains year-to-date, so it’s hard to complain. But I’m at least curious to see what happens to this rut, especially if the markets go south.
Joe’s Jeans (NASDAQ:JOEZ) is the stock that won’t go away. I panned JOEZ because it failed to release earnings on time, and because it was in serious risk of delisting by the Nasdaq. In short, I believed even if Joe’s had plans for growth and expansion, investors would be better off avoidin it because of its risky nature. Joe’s Jeans has since doubled in value, keeping its head above the $1-per-share waters for weeks — no doubt to the delight of a number of readers who torched me for the call.
As a note, I also felt the same way about semiconductor stock Micron (NASDAQ:MU) — not that the company was particularly weak, but that it was better left to day traders. Up 12% since then, MU has slightly outperformed the S&P 500 (9%), but it’s been a rocky road there. Credit is due, though. The company has, in the short term, weathered the untimely death of CEO Steve Appleton.
As the NCAA men’s basketball tournament kicked off, I advised readers to check out three options plays that could score big for traders because of the March Madness event. Well, the tourney isn’t even over yet, but the moves in these three options have been huge.
One was the General Motors (NYSE:GM) Apr 2012 27.00 call. That option can be described in basketball terms as a “brick,” as it tumbled 79% from my March 14 article through March 27. Fortunately, that was the only brick of the group.
My other two picks were winners, with the CBS (NYSE:CBS) Apr 2012 32.00 call up a respectable 23% from March 14 to March 27. The real slam dunk, however, was the Coca-Cola (NYSE:KO) Apr 2012 72.50 call. That option ran up the score to the tune of a 368% gain in just under two weeks. Now that’s what I call a nothing-but-net options trade!
One of my worst picks of Q1 2012 was a vertical spread suggestion on the SPDR Gold Trust (NYSE:GLD). In “The Gold Rise is Back in Play,” I highlighted a bullish breakout in the resurgent commodity and recommended selling a March 165-160 put spread. Unfortunately, Uncle Ben decided to step in and temper expectations for additional quantitative easing during his testimony before Congress on Feb. 29.
On the back of Bernanke’s statements, gold experienced a mini-crash of sorts, falling 4% on the day and completely reversing the initial breakout and uptrend that served as my thesis for the suggested trade. With my original forecast rendered moot, the appropriate response would have been to simply take the loss and move on to greener pastures.
GLD has yet to recover from the Bernanke-induced drop. Until it reestablishes itself back above its 20-day moving average, I see little need to revisit the yellow metal with bullish plays.
The Christmas holidays must have been quite relaxing this past year, because the companies I recommended in my first two articles in early January are moving in the right direction. Three months does not give me license to boast, but it’s nice to see nonetheless.
On Jan. 3, I recommended investors sell IAC/Interactive (NASDAQ:IACI) and buy AOL (NYSE:AOL). Through the end of March, AOL is up 25.6% versus 15.5% for Barry Diller’s conglomerate of businesses. AOL CEO Tim Armstrong got a contract extension March 30 that runs through 2016. Armstrong’s annual salary remains at $1 million. But he’s been given significant bonus potential and stock-option vesting that should keep him and his team motivated as they continue turning the business around. I like AOL’s chances.
On Jan. 5, I recommended Lorillard’s (NYSE:LO) stock over Altria’s (NYSE:MO) in large part because CEO Murray Kessler has delivered excellent financial results despite being paid a measly $3.7 million a year — almost $21 million less than his Altria counterpart. Add in a very attractive dividend, and you have to like the menthol cigarette maker’s chances of continuing to outperform. Year-to-date, Lorillard’s total return is 14.9% compared to 5.5% for Altria. As I said in my article, you don’t have to be paid a king’s ransom to do good work.
A trade idea on Jan. 23 produced a handsome profit. International Business Machines (NYSE:IBM) just announced earnings, and the stock gapped up from a bearish downtrend and proceeded to trade higher for most of the day. The original trade idea called for an entry above the previous day’s high, which was triggered the following day. The initial target on the trade was right around $194, which was a previous high set back in December and that was reached on Feb. 1.
What was really interesting about this idea is that a trader could have taken the initial profits and looked to enter the trade again. The stock traded between $190 to about $194 close to a month.
The new trade idea could have looked for an entry once IBM traded over the $194 base. A month later on Feb. 23, IBM finally broke above and held the $194 base and proceeded to move higher. Another call option could have been purchased once the stock moved higher. In hindsight, it would have been another profitable trade idea since IBM currently is trading around $207.
That’s why it’s important for traders to review their trades and charts and learn from the past. It also will help them spot profitable opportunities in the future.
Also, InvestorPlace Editor Jeff Reeves took a look back at a number of his own picks in this article.
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