A 3-Part Strategy for This Choppy Market

by Hilary Kramer | June 11, 2012 8:30 am

A 3-Part Strategy for This Choppy Market

The main goal at GameChangers is to profit from companies that grow their revenues and earnings over an extended and consistent period of time due to innovative products and services that should drive their stocks to outperform the market over time. This will always be our goal, and that doesn’t change even in difficult markets.

Investing with a longer time horizon gives us some flexibility in tough markets, but we never want to be blind to the current investing climate. Right now, there are concerns about the slowing economy and the resulting impact on earnings, and practically all stocks will be affected by this risk to some degree. Even stocks in the pharmaceutical industry, which are usually considered immune to the economic downturns, have seen their businesses hurt from the weakening economies in Europe, where higher budget deficits have hit insurance reimbursement rates.

Our job is to be aware of and manage the risks. Here, then, are some thoughts on our strategies pertaining to new opportunities, current recommendations and potential sells:

1) We will buy in down markets

That’s hard to do sometimes, but history proves that they are usually the best times to buy. We will go after the best opportunities as they present themselves, and we will emphasize companies in strong position to manage through potential economic difficulties.

We’ve been doing this already with our newest stocks such as Regeneron (NASDAQ:REGN[1]) and Myriad Genetics (NASDAQ:MYGN[2]). MYGN has been weak, but the company just reaffirmed guidance that was in line with Street expectations, and they presented positive data for their lung cancer test that showed it “significantly predicts cancer-specific death,” so I continue to like the stock.

We’ve also been doing it with the stocks already on our Buy List[3] that I highlighted as Top Buys in the current monthly issue: Vascular Solutions (NASDAQ:VASC[4]), Cognizant Technologies (NASDAQ:CTSH[5]) and eBay (NASDAQ:EBAY[6]). All three are up in the first four trading days of June, ranging from 3%–5%, while the overall market is slightly positive.

I’m constantly reevaluating all of our stocks, and unless you hear otherwise from me, I feel that that they have good potential for significant moves higher over time.

2) We will sell when stories change

Changes occur from time to time, especially in weak markets and economies. We will move on to better opportunities when the story and the fundamentals aren’t working out as we envisioned, whether because of the economic outlook or anything else. Along these lines, one stock that I’m watching closely now is GeoEye (NASDAQ:GEOY[7]), which we’ll talk more about in just a moment.

3) We are staying mostly out of industries and sectors where lower prices are more red flags than opportunities

Companies in financials, private equity and insurance companies, for-profit schools, gold miners and many natural resource players, clean tech are what we are talking about here.

For example, First Solar (NASDAQ:FSLR[8]) is a company that I made money on a few years ago. The stock hit a 52-week high of $142 last summer, and it has dropped 90% since then to just over $13! The fundamentals of the business and the overhang from Europe (where governments have been reducing subsidies for solar power) make it tough for the company to make any money right now, so this is an instance where a huge drop is a danger, not an opportunity.

I expect us to do some buying and selling in the coming weeks as we position ourselves for the second half of 2012. We need to continue watching the Fed and Europe closely, and we will take advantage of lower prices to position ourselves for longer-term profits.

As always, I will let you know when it’s time to buy or sell.

 

Endnotes:
  1. REGN: http://gamechangers.investorplace.com/gamechangers/stock-report/?t=REGN
  2. MYGN: http://gamechangers.investorplace.com/gamechangers/stock-report/?t=MYGN
  3. Buy List: http://gamechangers.investorplace.com/gamechangers/portfolio/
  4. VASC: http://studio-5.financialcontent.com/investplace/quote?Symbol=VASC
  5. CTSH: http://gamechangers.investorplace.com/gamechangers/stock-report/?t=CTSH
  6. EBAY: http://gamechangers.investorplace.com/gamechangers/stock-report/?t=EBAY
  7. GEOY: http://studio-5.financialcontent.com/investplace/quote?Symbol=GEOY
  8. FSLR: http://studio-5.financialcontent.com/investplace/quote?Symbol=FSLR

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