A Strategy for Turbulent Times

02/15/2016 10:00 am EST

Focus: STOCKS

Crista Huff

Editor, Cabot Undervalued Stocks Advisor

Crista Huff conducts in-depth technical and fundamental analysis to find the cream of the crop for her three model portfolios. Here, the editor of Smart Investing in Turbulent Markets, explains her investment strategy.

Steven Halpern:  I’m very excited to be able to introduce the MoneyShow audience to an advisor who is new to our coverage, Crista Huff, editor of Smart Investing in Turbulent Markets. How are you doing today, Crista?

Crista Huff:  I’m fine, Steven; how are you?

Steven Halpern:  Very good, thank you for taking the time. Now, the name of your newsletter certainly couldn’t be more timely, as it has definitely been a turbulent market. Could you discuss your investment strategy and explain how it’s designed to succeed, even during difficult times?

Crista Huff:  Steven, the stocks that make it onto my buy list are screened for strong future earnings growth, low price earnings ratios, and bullish technical charts.  

I am screening for the cream of the crop stocks that pass both the growth test, the value test, and technical analysis test.  If these stocks can’t survive and thrive, then no stocks can.

Steven Halpern:  Now, despite the market’s current uncertainty, you recently reminded your readers that today does not resemble the market declines of 1987, 2000, or 2008. Could you expand on that?

Crista Huff: Sometimes markets deserve to fall, due to overvaluation.  When that happens, it’s very hard for me to find any undervalued growth stocks, and everywhere I go, investors are talking about the stock market.

Neither of those two things are happening right now.  What usually happens during market corrections like this one is that extraneous financial news is affecting US stocks, things like interest rates, foreign economies, oil prices, junk bond defaults.  

I don’t worry about those things because it’s always something.  If it wasn’t that, it would be gold or it would be something happening in Japan. I stay focused on charts and valuation and I encourage people to stay the course.

Steven Halpern:  Now, in your newsletter, you feature three distinct model portfolios. Let’s walk through those to help better explain your investment approach. Could you highlight a stock in your Growth portfolio that would help explain your stock-selection process?

Crista Huff:  In my Growth portfolio, I have WellCare Health Plans (WCG); it’s a managed healthcare company.  I picked that stock because earnings per share were projected to grow 68% in 2015 and with continued strong earnings growth for the subsequent two years.  

The price: earnings ratio was 25, which was very low versus the 68% earnings: growth rate.  After I put the stock in the portfolio, analysts continued to increase their earnings estimate.

This week, WellCare reported last year’s earnings up 89% and still, the next two years’ earning growth is super strong.  That is a classic profile of a stock that I pick, strong earnings growth, low price:earnings ratio.  

Steven Halpern:  Now, let’s turn to your Growth and Income portfolio; what type of stocks would an investor find there and is there any particular idea that stands out from that portfolio?

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Crista Huff:  My Growth and Income stocks, they feature strong earnings growth but also, with dividend yields over 1.5%.  I added SanDisk (SNDK)—which is an IT data storage solution company—to the portfolio in early October.  

After the market had been beaten down due to poor 2015, the stock had been beaten down due to poor 2015 earnings.  When we’re getting close to the subsequent year, then I will consider adding the stock to the portfolio; I won’t add it when a poor year is in front of it, I’ll add it when a poor year is behind it.

The strong earnings growth was expected to resume at SanDisk in 2016 and 2017. The stock price had turned upward and the dividend yield was 2.2%, so I added it to my buy list.

Low and behold, SanDisk received a takeover offer from Western Digital Corp four weeks later, and so I had my folks sell it, after it ran up from the takeover offer with about a 25% profit.  

There is currently an undervalued financial stock in my Growth and Income portfolio with a 2.3% dividend yield; it did not suffer with the recent market downturn and it’s trading within 10% of its November all time high.   

Steven Halpern:  And what stock is that?

Crista Huff: H&R Block (HRB). I don’t like to give away information for free, but yes, it’s H&R Block. It’s awesome; huge buyback, huge earnings growth, big dividend, and strong chart.

Steven Halpern:  Okay, now, finally, you’ve developed a specialized portfolio called Buy-Low Opportunities.  Can you share an example of a favorite idea that fits this category?

Crista Huff:  Normally, I prefer to stick with stocks that have bullish charts. Year in and year out, my Growth and my Growth and Income portfolios are all going to have stocks with very strong charts and the Buy-Low Opportunities portfolio will have stocks that had fallen and then traded low and sideways for a long time.

They haven’t begun their price recovery yet. I call them buy-low opportunities because they’re stable, they’re unlikely to fall any further, and a lot of times when a stock falls a lot, the dividend yield increases; it’s like a see-saw, the price goes down and the yield goes up. It’s quite an opportunity to buy low at that point.  

I make sure that the stocks are expected to have strong earnings growth going forward or I won’t touch them.  In early November, I added Abercrombie & Fitch (ANF) to the Buy-Low Opportunities portfolio.  

After a bad year in 2015, earnings were then expected to rise about 25% this year and next year, and the stock had a 3.5% dividend yield.  Within three weeks, the share price was up 16%.  That’s a classic example of something in my Buy-Low portfolio.  

Steven Halpern:  Now, is this still an opportunity that investors could consider?

Crista Huff:  No, I removed it from the portfolio after it went up rapidly, because at that point, it was most likely to trade sideways or recede a bit and so my current Buy-Low portfolio has new opportunities just like that one.  

Steven Halpern:  Our guest is Crista Huff, of Smart Investing in Turbulent Markets. Thanks for your time today.  

Crista Huff:  Thank you.

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