Wednesday, March 21, 2007
old post that never made it
Ok, where was I. If the stock market were a car, then consumers would be the driver. What we want and what we need in turn becomes what we buy. We can steer the market in a direction toward what we are purchasing. The market moves up and down depending on how well we are doing, we have the accelerator and brake in the form of retirement programs and consumer spending. The government is the RMV(kind of funny how true this is). Listed companies in turn aren't even part of the car, they are more like billboards. They are all saying 'buy me." Like the McDonalds, Next Exit signs. How well they produce the good we want will determine if we steer toward them. This analogy isn't working out.
Here's how I determine what stocks I buy. First I sit back and look around me. What has changed, what's new. Look for companies that have been around forever that have a depressed stock price. The hot item Christmas '05, IPODs, so for a short time APPL went through the roof, then came crashing back to reality. It has since gone through the roof again with a great new computer launch.
Some of my success stories from last year and my thought process behind it. CWTR, SBUX, WFMI, DB, RAI, HES
Last year, Starbucks stores started popping up everywhere from the mall to Target. now I'm not a big fan of their coffee, but a lot of people are and they will pay big bucks for it. Also, I heard the CEO on Mad Money talking about their China expansion and that there are 250 million young, affluent Chinese people. SBUX is a growth company and should trade at a multiple of 50. With that in mind I picked it up when it was trading around a P/E of 35 and sold it when it got near 50.
Many of you probably haven't heard of Coldwater Creek. For many years it was a women's catalog clothing company. Solid, but boring. They have gone national with expanding there retail stores and their customer base is women 40+. Its my mother's favorite place to shop. So, I used to go in there when I needed to buy her gifts, they had a multitude of things to buy and the place was always crowded. I bought the stock solely based on my experience at the store.
Whole Foods, last year I bought and shorted this stock and was right in both directions. I was right, not because I'm good or lucky, but the market was wrong. Based off of WFMI growth rate they were similar to SBUX in growth rate and should have been trading in a similar mulitple range. For some reason this stock was a roller coaster even though the company was steady. So when it dropped too low, I bought and when it went nuts I shorted it. No great profits, but a 10-20% gain in both directions.
Deutche Bank, I wanted a bank stock to diversify my portfolio that would not be as effected by potentially rising interest rates. I got lucky and jumped on a steaming train. I expected steady and got an ass-kicker.
Reynolds American, I wanted a high dividend stock(they paid 5% at the time) that seemed underpriced. They fit the criteria. Comparing them to other tobacco stocks, their financials were very good, but the price was depressed. I jumped on at the right time and rode them for about a 30% bump. Hard not to ride a good company for that last year.
Hess, if there is an oil company out there that can be liked its Hess. They are the little guy of the business and they own the NY Jets. I bought them, because 3 of 5 guys in my department got a Hess Card this year. They give you 5% off your gas and they are putting up a lot of Hess Express stations. I looked them up and their price was down compared to other oil companies, so I bought some. HES has typically in the past traded closely with the price of oil. This past dip in oil prices was the first time they held their ground. I think the new stores and credit cards are partially responsible for that.
Next post will be....
My biggest mistake. CQB
Some I didn't jump on but weren't surprised by the way they moved. TM, MCD, ANN, CWTR
How I decide if a company is over/under or correctly priced.
