“The Captain has suggested you wear your safely belt…time to be cautious.”
We have had a tremendous ride with the stock market for an extended period of time. Since the panic selling way back in 2009, we have seen one of the most unloved bull markets create outsized gains–for most everybody involved. Across the board, small or large and in almost every sector, investors have seen returns that have surprised the bearish naysayers. While the trend is your friend right up until the end, it is time to protect your capital, tighten stops, and clear out the most speculative holdings in your portfolio. Expect increased volatility to pick up and better entry points to appear soon. For those willing to simply ride out the air pockets, at least have your safety belts on, and do not get scared out at the bottom again simply because you are invested above your true risk tolerance.
The international concerns, the slow growth domestically, and the ineptness in Washington are not what concerns me. These problems have been around during my entire plus-25 years in the business. I simply expect the dreaded “10% pullback” we have not seen in years and can almost feel it coming. However, I do not expect a true bear market until the next Presidential election is completed, and I expect to see Dow at 18,500 before the next severe selloff.
I currently have several “Top Ranked Magnets” in our fund. I do not want to be on the sidelines when I can find companies that are hitting on all cylinders–accelerating revenues, margins, and cash flow–currently trading at a discount to their internal growth rate, under accumulation by the bigger funds and trading with positive price momentum.
I am also holding several short positions at his time. The Magnet® system identifies both long and short candidates. Companies with declining revenues, declining margins, heavy insider selling, negative price momentum, and too much debt are great candidates to sell short, and help reduce the overall risk in your portfolio. There are a few “over loved” companies in social media that look like they will be much lower over the next several quarters.
I’ll share a few holdings with you, but remember these are not blanket recommendations, and I often move positions around quickly and am not married to any positions. I will continue to use the Magnet® model to re-evaluate our portfolio and make adjustments along the way. I will continue to have my “Top and Bottom” lists and will continue to use them actively. What is best for you depends on your own timeframe and risk tolerance.
Longs: Gilead Sciences Inc. (GILD), Lannett Company, Inc. (LCI), Knightsbridge Tankers Limited (VLCCF), Rambus Inc. (RMBS)
Shorts- LinkedIn Corp. (LNKD) , Teck Resources Limited (TCK)
This article has been prepared solely for informational purposes, and is not an offer to buy, nor sell or a solicitation of an offer to buy or sell any security, product, service or investment. The opinions expressed herein do not constitute investment advice and independent advice should be sought where appropriate. All information and opinions expressed herein are current as of publication and are subject to change without notice.
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