When the politicians and talk radio and the fools on TV are scaring the piss out of Grandpa in order to bump ratings and get elected, it is important to note that you don’t have to play along.
In fact you should tell them to stick it.
It’s time to build your own bull market…
A bull market exists when stocks are going up or expected to go up. It stands to reason those which just made a 52-week high are in a bull market, and are expected to go up. Stocks that make new highs continue to make new highs.
The trend is your friend.
Sell the losers and keep the winners.
Winner, Winner, Chicken Dinner
Last week, when the Dow Jones Industrial Average fell almost 600 points and Obama and Boehner were playing chicken with U.S. default, 46 stocks made new highs — including one I recommended last week.
The list starts with Ashbury Automotive (ABG), a car dealer based out of Georgia, and ACI Worldwide (ACIW), a software company that focuses on facilitating electronic payments.
The list ends with Telecomunicacoes De Sao Paulo (VIV), a Spanish telecom that announced disappointing earnings after hours, and Wyndham Worldwide (WYN), a hotel/resort company that includes chains like Super 8, RCI, and Howard Johnson.
That Don’t Make No Sense
Now, if you only read the popular press or watched CNBC, there is no way you’d buy these stocks — much less think they were hitting 52-week highs. Think about it…
We have an automotive dealer, and car sales are abysmal. (Crisis and Opportunity readers just made 105% in a week with GM options based on oversupply of large trucks.) Yet, Ashbury is making mad bank.
New car sales were only up a modest 5%, but used car sales were up 15%.
People still need cars; they just can’t afford new ones, and the margins on used cars are larger than those on new cars — especially since Obama crushed all the good, cheap vehicles last year. (Way to look out for the little guy there, Obama.)
Software Is Selling
ACI Worldwide, the software company, is up for the simple reason that it has increased net income every year for the past three years. Clearly, this is an industry that doesn’t care about debt-to-GDP ratios or unemployment numbers. Margins are software-company-fat and ACI is growing at a 20% quarterly year-over-year clip.
Truth be told, I’d rather own Oracle (ORCL), as it has better numbers and a longer track record.
Why buy a small cap when you can get better growth and a lower valuation in a blue chip?
VIV is a Spanish phone company that had a surge of buying into earnings last week.
Earnings were flat and Spain is bankrupt. I’m not a buyer.
Wyndham Worldwide is interesting…
Why in the world is a hotel/resort company up 190% this year when the consumer is broke?
Well as it turns out, the timeshare business is a great cash cow. And cash is king these days.
According to Yahoo Finance:
Wyndham continues to target $600.0 million to $700.0 million of free cash flow generation for 2011, the vast majority of which will likely come from its vacation ownership business. The company will then use this cash flow to expand its operations by investing in its rental and exchange business. Management believes that foreign tax credits will likely benefit cash flow for the next several years.
The Timeshare Scam
In 2006, I took one of those free deals to stay at a Marriott Resort for a week and treat my offspring to a trip to Disney World.
Both experiences were disconcerting.
After the half-hour presentation, the salesman asked if we were going to buy. I replied, “Why would I spend $6,000 a year on a place I just used for free?” To this, he had no answer.
During that week, I went to the Ron Jon Surf Shop at Cocoa Beach. My favorite T-shirt as a teenager in Upstate New York was emblazoned with “Ron Jon Surf Shop,” and I just wanted to see the place.
I was expecting a cool shack with a dead palm tree looking out over a golden sunset. There would be bikini babes serving rum punch and Jimmy Buffet would splash down in a Grumman Albatross…
Much to my disappointment, I found a giant box store filled with generic beach knickknacks. And wouldn’t you know it? They were selling timeshares.
At the time, every strip mall (and what is Florida, if not the land of strip malls?) had a sign that said “We Buy Timeshares.”
I’m sure they’ve all been replaced with signs that say, “We Buy Gold.”
My point is that selling timeshares is a fantastic scam, and Wyndham keeps leveraging up.
My second point is that after picking four stocks at random off the 52-week new-high list, I found three out of four that were living in their own bull market.
The best thing you could do for your own portfolio is to turn off CNBC and ignore the chatter from the mainstream media…
If you want to make money on stocks, find an unheard of, undervalued company that is growing. When it’s “discovered,” the new buyers will be paying your price.
Peace out, brah.
Editor, Wealth Daily