One Stock Still on Solid Footing
08/11/2011 11:30 am EST
There’s always a universal lesson or two in big market moves and learning from them can be very valuable, both literally as well as figuratively says Elyse Andrews of Cabot Wealth Advisory.
A few weeks ago, I wrote an issue of Cabot Wealth Advisory about seven lessons that apply to both running (one of my favorite hobbies) and investing (a big part of my professional life).
One thing I didn’t discuss, but want to today because it’s especially timely, is taking breaks.
Most people who love to run (or really love any hobby), want to do it all the time. The problem is that too much physical activity can actually be harmful.
Take it from me, increasing my mileage too quickly last week was a mistake. Now my Achilles tendon is sore, and I’ve had to put the brakes on my training.
At first, I was upset about this. I love running, especially right now when the weather is so gorgeous. I also use running as a way to relieve stress…and with my wedding fast approaching, I need all the stress relief I can get!
But not giving myself proper time to rest and take a break was taxing both physically and mentally. And the same is true of investing.
In fact, the infamous stock trader Jesse Livermore once said, "Every once in a while you must go to cash, take a break, take a vacation. Don’t try to play the market all the time."
At Cabot, we wholeheartedly agree with this philosophy. So our growth stock newsletters use our proprietary market timing indicators as a guide; they tell us when to invest aggressively, and when to retreat to the safety of cash. At times like the present, it’s especially important to heed their message.
As you likely know, the stock market has basically traded in a range for much of the year. This type of action can be especially frustrating—and fatiguing—for investors because there is little sense of which direction the market will go. You just have to wait and see.
Just this week, when the market really started to sour, Cabot Market Letter Editor Mike Cintolo recommended building up more cash, especially if you don’t have a lot in reserve yet. This strategy helps preserve your capital—and your sanity.
If you follow this approach, you’ll have the resources—both financially and mentally—to start investing again once the market starts trending higher, which it undoubtedly will.
(To those who argue with that point, I invite them to take a look at a chart of the Dow Jones dating from 1890s. It clearly shows a long-term uptrend. We have a similar one hanging in our office to remind us that in the long-term, the trend is always up.)
The message right now: Protect your capital. And your sanity. Your portfolio will thank you.
However, there is one stock I want to discuss that has recently reappeared on our radar screens: Crocs (CROX). Way back before the big bear market of 2008 (remember that?), we nabbed 307% profits in CROX.
I remember clearly the first time I saw someone wearing a pair of Crocs shoes. It was the summer of 2004 and they were bright orange. I thought the shoes were the most ridiculous looking things I’d ever seen. Nevertheless, sales have boomed!
Crocs’ success has come from its lines of sandals, sneakers and other types of shoes made from its proprietary closed-cell resin Croslite material. Crocs makes shoes for men, women, and kids in almost every color you can imagine. The company also sells shoes in other materials, like leather, and shoe charms that fit onto its classic clog model.
Hospitals and restaurants are big customers, though most of the people I know who own Crocs just love the convenience factor of having a lightweight, slip-on shoe that cleans easily (probably a big reason for their popularity with kids).
After getting hit hard in the bear market and recession, Crocs is doing well again!
Crocs reported just last week that its second quarter revenues jumped 30% to $296 million, and earnings soared 65% to 61 cents per share. The company also saw wholesale sales rise 26% to $176 million, retail sales pop 38% to $92 million, and online sales jump 30% to $28 million.
Much of Crocs’ growth is due to its overseas and product-line expansion. In Q2, sales in the Americas were up 16% to $121 million, sales in Asia increased 38% to $122 million, and sales in Europe climbed 50% to $52 million.
The company increased its forward guidance after the glowing quarter, and many analysts followed suit. Shares of CROX jumped last Thursday after the news, and subscribers to Cabot Top Ten Trader are sitting on 50% gains since they bought the stock in May.