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No Bark, But Some Bite

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The Dow has made 36 new highs this year while the S&P has made 51 new highs, yet still, the market in general is not overbought. Biotechnology shares are positioned for perfection, and yesterday took a big hit at the shorts smell a bubble. For that reason, the NASDAQ was under pressure, but I think next year it finally matches its all-time high, although it will be completely comparing apples and oranges. The index will be driven by small cap tech names that came out the gate nicely this year but stumbled from quick overvaluations and the greed of insiders.


The stock in that situation currently is Go Pro (GPRO) which had a limited lock-up expiration yesterday and in 90-days a much larger lock-up. If the company is smart management would issue a statement saying they are not selling for a certain period of time. While we all understand asset management and individuals diversifying their portfolios, nobody wants to own a stock when the insiders are selling... can you say "sucker." But on that note, I will say years ago, when Steve Jobs was kicked to the curb by the very CEO he brought in to help, he sold all his Apple shares.

When I read that I sold all mine. Back then, it felt smart as Scully destroyed the company, but it took me too long to buy the stock back and if I had held and actually bought the Scully dip, I would have made a fortune. I share this story because recently people have complied about stocks that aren't higher and in some cases I've seen people take losses- out of frustration and ignorance about investing. The reality is every single stock at an all-time or 52-week high today hit a point where shares were down more than 10% and lots of investors dumped.

If you are a self-professed trader, than be a trader; if you claim to be an investor, learn to let fundamentals, and not temporary situations and news that has nothing to do with fundamentals like most insider selling, dictate your actions, so you are long when these same stocks are at new highs instead of telling your friends about how the market in general sucks.


Who let the Dogs Out?

The Dogs of the Dow is an investment strategy that annually selects the ten Dow Jones Industrial Average stocks whose dividend is the highest fraction of their price.

For the most part, higher yields are often associated with stocks that are down- the lower the share price, the higher the percentage payout- hence the use of the word “dog.” Like the January Effect, we discussed yesterday the “dogs” hasn’t worked out as well as it used to. We should also note the dynamics are different these days.

Companies with strong balance sheets are hiking their dividends unlike yesteryear when high yields were more a function of a broken stock. Take a look at the current dogs… all household names around for decades, but most have individual challenges from the abandonment of landlines for AT&T to oil for Chevron and Exxon, to poor management for GE to the slumping global economy for Caterpillar, changing taste and rejection of carbonated soda for Coca Cola to dragging its feet on cloud computing for IBM.

Dow Jones Industrial AverageYield
Verizon Communications4.74
General Electric3.67
Cisco Systems3.06

I like the oil companies for 2015 as crude is oversold and comes back... next year, if not, the next, or the one after next… but make no mistake, one day, we'll fret over crude at $150 and gasoline above $4.00. But, my favorite 2015 "dog" is IBM.

I think Big Blue deserves to be a laggard as management has dragged their heels on shedding non performing businesses and gaining on the cloud.

They will get their act together and the stock will rebound. In the meantime, you'll get a $4.40 yield. This is our long idea today and I'm sharing with all, especially those looking to start a portfolio.


Merry Christmas to all, and God Bless.

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