This week I’d like to coddiwomple through making mistakes and staying data-dependent to gain a...
Apple and Disney: Top of a Watch List
08/19/2015 10:00 am EST
Stephen Quickel, editor of US Investment Report, focuses on growth stocks at value prices and employs trailing stops as an integral part of his strategy. Here, he explains this approach and discusses two long-term favorite stocks on his watch list.
Steven Halpern: Our special guest today is growth and value investing expert Stephen Quickel, editor of US Investment Report. How are you doing today, Steve?
Stephen Quickel: I’m doing fine, Steve.
Steven Halpern: As we speak, the stock market is continuing its slide, but your investment strategy focuses on strict stop-loss points to avoid major losses in your portfolio. Could you expand on that approach?
Stephen Quickel: Yes indeed, you’re certainly right about the market. I’m looking at a monitor right now and there is—out of about 60 or 70 stocks—there’s only one that’s in green, meaning it’s up, all the rest are red, meaning they’re down.
It’s not been a great time, but it’s certainly in times like this that our strategy of using stop-loss limits really steps to the fore and serves us pretty well.
We started doing this many years ago, when hot new stocks were things like Microsoft (MSFT) and Intel (INTC) and so forth. We'd ride them upward, keep moving the stop-loss when it’s up behind them as they rose, and then when they started to decline, that would be our sell strategy.
We’d be taken out of stock automatically, we'd wait for it to go through whatever little correction it was going through and then we’d buy it again and ride it up a second time, and a third, and a fourth, and a fifth.
We consistently followed that strategy—every single stock in our model portfolio has a stop-loss limit—and we revise them fairly often. Particularly when there have been major moves in the stock to make sure that this Stop-Loss Limit is nice and tight underneath. We preserve capital and we spare ourselves from runaway losses.
Steven Halpern: Now, as a general rule for investors, is there a particular percentage below the buy price that you would set that stop-loss or does that change depending on the stock and the overall environment.
Stephen Quickel: Yeah, when we first started using it, I tailored the stop-loss limits to the stocks as I understood them and knew them from studying them. I found it a general rule that we were coming out between 7% and 8% stops, 7% and 8% below the current market price.
That’s a little bit on the tight side for most people and some of our subscribers say they like to keep them a little looser than that, maybe 8% to 9% or something on that order. We found the 7% to 8% range is a good place to put a stop. It’s not so tight that it puts you into stops that don’t make sense.
Steven Halpern: One reason that you protect yourself on the downside is that you admit that it’s foolish to try and time the overall market. Rather, your goal is simply to uncover the right industry groups—and then within those groups—find the right stops. Could you explain this approach a little more?
Stephen Quickel: Yes. I think that’s fine. Right now, for example; medical stocks are still pretty highly favored, but not all of them are highly favored. We can target the medical group as a group that has got some strong potential, but we look at individual stocks within that potential.
I’ve observed for a long time that guys who try to time the market—that is try to anticipate the markets moves as they’re happening or even before they happen—usually end up with egg on their face more times than not.
Steven Halpern: Now let’s turn to some individual stocks and one idea that you’ve recommended on and off for years is Walt Disney (DIS). Is the market downdraft here creating a long-term opportunity?
Stephen Quickel: I think so, very much so. Disney is a fabulous company with all kinds of things going for it. It’s run into a little bit of rough weather after a pretty strong run up in the early part of this year. Got up over 120, it’s now trading at 106.
This decline has all happened within the last week or two and I think what it’s coming from is the questionable notion that cable TV subscriptions are headed on a down spiral.
That’s not happening. Neither is it a long-term trend that cable TV revenue and subscribership have tended to level off or even decline slightly. But while it’s a huge part of Disney’s business, it’s only one part of it.
Disney has five different businesses: Media networks, that includes ESPN—probably the biggest cable network—ABC, Disney Channel, it includes parks and resorts, the well-known Disneyland or Disney World, etc., with parks in Japan and Hong Kong, studio entertainment—which is live action and animated films—consumer products, where their visual and literary tradeoffs on their brand names.
And they do a very good interactive business, where they create and deliver entertainment and lifestyle content. It’s a 50 billion dollar company that’s got many strings to its bow and it’s a great long-term stock, as far as I’m concerned.
Steven Halpern: Now another stock that you often recommended that’s also been pulled down with the market is Apple (AAPL). What’s your outlook here?
Stephen Quickel: Yes, right. Well, I feel much the same way about Apple. Although I have to tell you that we’ve been stopped out long since on both Apple and Disney. Both Apple and Disney have been stopped out of our portfolios and we’re not in them nor am I recommending buying into them at this point in the market.
I very much avoid buying into a falling market. I don’t try to catch a falling knife, as the expression goes. Apple, which now, has descended from $132, passed our stop at about $124, and is trading today at $113.
We saved ourselves a distance from $124 to $113 thanks to our stops. Worry about Apple seems to be centered around China and it was accentuated by the action of the Chinese in devaluing the yuan recently.
As it’s sort of confirmation that maybe there is an economic slowdown of some significance in China. It’s interesting to note that the company, the analyst who promoted that notion recently—and it was picked up prominently by The Wall Street Journal—are part of the Jefferies Group, an American firm.
According to Jefferies, they’re on-going ground checks in Hong Kong, Shanghai, Soul, Tokyo, show that the iPhone in particular is enjoying “robust demand.” Tim Cook—who’s the CEO of Apple—figures that China is probably going to be Apple’s biggest market sometime in the not too distant future given the sheer size.
China is important. I think there will always be swings in opinion and fact about which markets are going where and how soon. It’s part of the price of owning a front-running stock like an Apple, or a Disney, or maybe even a Netflix (NFLX), companies that are innovators and movers and shakers coming up with great products.
Steven Halpern: So, is it safe to say while you are out of Disney and Apple now because the down move in the stocks has set off the sell-stops, that these are the types of positions that—in a firmer market with when things are ready to move back up—that would be at the top of your list looking forward.
Stephen Quickel: Yes. I mean, Apple and Disney are certainly in the top ten on my watch list, but I’m waiting and watching to see a confirmed upturn in the market. By confirmed, I mean a couple of bulges in the market averages within a week or so of each other on every trading volume.
That would be a signal to me to start thinking seriously about reinvesting, but I have to tell you that our model portfolios now are—all three of them are—over 50% in cash. And we’re perfectly happy, idle cash is not bad in this kind of market.
Steven Halpern: Again, our guest is Steven Quickel of US Investment Reports. Thank you so much for your time today.
Stephen Quickel: Okay, thank you Steve for having me.
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