Many times people ask me how I come up with my investment strategy.
Obviously, there is no one answer, but a common trick I use when developing any investment strategy is to look for areas where market sentiment still remains below peak optimism.
Following the tragic events of the Fukushima Daiichi nuclear power plant disaster in Japan, market sentiment for uranium dropped, naturally. As Japan halted all nuclear power plants, shareholders adjusted their investment strategy to get out of uranium mining stocks.
Now, the time when market sentiment is about to shift for the uranium industry, I believe, is close at hand.
The reality for energy use over the next decade is that it will grow massively around the world. Nations like China and India cannot keep up with industrial demand for energy, which is now causing huge amounts of pollution.
Chinese authorities are aware of the polluting side effects of conventional energy sources, such as coal, and are building several new nuclear power plants, which is a much cleaner energy source. Market sentiment will continue to shift in favor of uranium as more nations realize that nuclear power will continue to be with us for some time.
Adjusting your investment strategy before everyone jumps on board is important. Even Japan is now conducting analysis to re-open 14 nuclear power plants, as five utilities within that nation are requesting these energy sources be put back online.
If you’re going to look for a uranium miner to add to your portfolio, one well-established and smooth-running company to consider is Cameco Corporation (NYSE/CCJ, TSX/CCO).
Chart courtesy of www.StockCharts.com
In the latest quarter, … Read More
You know, it’s funny; with the stock market hitting all-time highs and market sentiment becoming ever more bullish, you would think that the economic recovery both here in America and globally was right on track.
But you’d be wrong. The economic recovery is not accelerating globally, and here in America, we just witnessed a minor bump up in growth primarily led by a build-up in inventory.
Ask the average person on the street: do they feel as if the economic recovery is running full speed ahead? Do most Americans feel better today than they did last year?
I’m willing to bet that most people don’t feel that much different about the economic situation than they did a year ago. Yet stock market sentiment has gone from highly pessimistic to overly optimistic. After all, we are at all-time highs; doesn’t that mean that the economic recovery is close at hand?
Not necessarily. I believe much of the upward move in the stock market (and market sentiment) this year has been primarily fueled by the Federal Reserve’s easy money.
Look, most people have a short-term memory. They don’t tend to remember the longer historical picture. Instead, they see what has worked over the past couple of months and continue doing the same thing over and over again until they get burned.
Market sentiment began building up in the middle of 2012, and once investors realized that the Federal Reserve had its foot on the accelerator, people piled into the market. This has kept pushing market sentiment ever higher, regardless of whether or not the economic recovery was accelerating.
This one chart is … Read More
I kind of thought that buying in the stock market was somewhat euphoric and based more on the Federal Reserve’s easy money policy than solid underlying fundamentals.
A good indicator of excess in the stock market is when initial public offerings (IPOs) surge by ridiculous amounts on their first day of trading. We have seen numerous IPOs surge this year as the bullish stock market sentiment has allowed a perfect environment for companies to go and raise capital. When IPO activity picks up and new issues surge regardless of the fundamentals, you have to wonder if the stock market is setting itself up for a subsequent sell-off.
Take a look at The Container Store Group, Inc. (NYSE/TCS), which more than doubled from its $18.00 subscribed price when it debuted last Friday.
Now you may think the Container Store is a high-growth technology stock. But it’s not—not even close. The company sells boxes, packaging materials, organization units, and small gift items. That’s it. The network includes 62 stores but is expected to expand aggressively. Again, so what? There’s no way this stock deserves to double on its first day.
When a seller of boxes doubles in one day, you have to step away and pause. The stock market euphoria on IPOs is unwarranted and clearly suggests the stock market has gone mad. Take a step back and really think about taking some profits off the table.
There was also the IPO debut of China-based e-commerce classifieds web site company Beijing 58 Information and Technology Co., Ltd. (NASDAQ/WUBA), or 58.com Inc., which some dubbed the “Craigslist of the Orient.” The stock surged … Read More
As someone who’s been involved in this business for many years, one thing that never surprises me is that people make the same mistakes over and over again.
Taking a look at different sectors, it’s quite interesting to see how market sentiment has gotten so poor in one area but is so exuberant in another. The funny part is that corporate earnings appear to have nothing to do with the current level of market sentiment.
Investors who have been in the markets for a while will remember the “dot-com” bubble of the late 90s. During that time period, market sentiment for any stocks that had “.com” in the name was through the roof in optimism. Sure, the stocks had no corporate earnings or real path to generating corporate earnings, but the web sites had plenty of viewers.
It’s too bad that views on a web site don’t translate into corporate earnings or cash.
We all know what happened next: reality eventually hit market sentiment, and these high-tech flyers crashed hard.
Ah, but this time is different, you might say.
It is true that many of the high-tech companies are extremely strong fundamentally, generating high levels of corporate earnings, including firms like Google Inc. (NASDAQ/GOOG). However, it appears we are reaching a level of market sentiment frenzy in technology stocks that I haven’t seen since the late 90s.
The latest example is a report that the company Snapchat, Inc. has just secured an additional round of financing that values the company at $3.6 billion! (Source: “Snapchat Is Mulling Another Huge Round at a $3.5 Billion Valuation,” AllThingsD.com, October 25, 2013.)
You … Read More
Looking back over the past year, it’s quite amazing to see the shift in market sentiment. Last year, many investors were quite skeptical of the market, best represented by the S&P 500, and this led to cautious market sentiment.
This year, with the S&P 500 hitting new all-time highs, market sentiment has certainly improved substantially. But the question is: can the move continue?
Obviously, nothing moves up in a straight line. However, much of the market sentiment has been built on the belief that the economy will rebound strongly next year. Now, there are some signs emerging that suggest this might not be the case.
While the economy has improved substantially since its depths during the Great Recession, there’s much more work to be done.
Consumer spending is a large part of the economy, and many companies within the S&P 500 are impacted by it. The latest data by the U.S. Department of Commerce indicates that retail sales for the month of August increased by only 0.2%—a disappointment versus expectations of an increase of 0.5%. (Source: U.S. Department of Commerce web site, last accessed September 13, 2013.)
So now we have a situation where the largest part of the U.S. economy—consumer spending—appears to be slowing. If this continues, this could be a dangerous scenario, as market sentiment is clearly in the camp that both revenues and earnings will reaccelerate.
For the S&P 500 to continue moving upward, we need to see revenue growth in addition to earnings growth. Much of the increase in earnings that has helped propel the S&P 500 upward was due to cost-cutting measures. In general, revenues … Read More