Don’t Overplay Your Hand in Today’s Market

by Richard Band | September 21, 2012 10:37 am

We’re hearing the siren song again. Stocks barely moved Thursday[1]  (the S&P 500 index closed off a fraction of a point), but the sharp rally of the past three weeks has emboldened the bulls.  They’re abandoning caution — indeed, any sense of investment discipline — and they badly want you to join them.  Pronto!

I’ve been struck by some of the cheeky or even just plain silly advice that has crossed my desk in the past few days.   One strategist at a major mutual fund complex thinks it’s oh-so-clever to taunt conservative investors.  “Can’t sleep?” he asks the risk averse.  “Take the money out of your mattress,” he dares them, and put it into stocks.

In the just plain silly category, we hear from a celebrated pair of chartists that FINALLY, IT’S TIME TO BUY.  “After months of volatility and uncertainty,” they say, “the markets are looking good.”  May I be so rude as to ask:  Where were these distinguished ladies 1,000 or 2,000 Dow points ago?  Isn’t their new found cheer a wee bit late in coming?

I could multiply examples, but I’ll spare you.  What we’re seeing is a clear psychological shift toward reckless, giddy risk taking.  This change of heart typically occurs late in a market uptrend, and it nearly always ends in tears.

Not that I’m expecting a market collapse tomorrow.  Clearly, momentum favors the upside right now, and we’ll soon be entering the fourth quarter, normally a benign period for stocks.

However, this is no time to overplay your hand.  It’s OK to buy stocks selectively, but you should be focusing on the least-risky sectors of the market — not going all-in on China, as one widely followed advisor urged his clients to do today!

At the moment, I’m drawn particularly to the utilities.  They haven’t moved much this year, which is all the better.  That means dividend yields are still attractive—in fact, more attractive (compared with bonds and other dividend-paying stocks) than they were at the beginning of 2012.

PG&E (NYSE:PCG[2]), written up in the October newsletter, continues to rate a buy at $44 or less.  Note that PCG goes ex-dividend September 27.  Thus, to capture the October dividend, you’ll need to buy the stock before next Thursday (September 27).  Current yield: 4.3%.

Among the other utilities we’re watching, we’ll buy Southern Co. (NYSE:SO[3]) at $44.50 or less for the Incredible Dividend Machine.  (See Tuesday’s blog.)  We’ll also buy Duke Energy (NYSE:DUK[4]), per the October newsletter, at $63 or less.

DUK came within 3 cents of our target on Tuesday—enter a limit order and be patient!  We’re tracking DUK as a Niche Investment.

Outside the utility arena, Waste Management (NYSE:WM[5]) is back on a buy signal.  The trash hauler got trashed by a brokerage firm Wednesday, but there was little new information I could see in the research report.  Indeed, the analyst lowered his price projection for the stock by only 50 cents!

Meanwhile, WM yields a generous and safe 4.4%, more than the longest-dated Treasury bond.  Pay up to $32.80 for this member of our Incredible Dividend Machine.

P.S.  Delicious news today from ConAgra (NYSE:CAG[6]).  Not only did the food processor beat August-quarter earnings estimates by a wide margin, but the company also raised its outlook for FY13[7] and boosted the dividend 4.1%.  The stock jumped more than 6% to a new high for the year.

It’s great to have our faith in CAG vindicated after all the sneers and brickbats this outfit has endured from Wall Street.  Hold the stock, with a big smile!

  1. Thursday:
  2. PCG:
  3. SO:
  4. DUK:
  5. WM:
  6. CAG:
  7. raised its outlook for FY13:,yahoo

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