Just as a rising tide can lift all boats, a falling tide can also sink them.
As I've been writing for the past few months, investors should be thinking about opportunities for profit-taking after the market made a virtually uninterrupted upward move since October, 2011. I was poorly-positioned for that rally in my $100,000 Real-Money Portfolio, focusing on stocks that were built for the long haul. Instead, the market has rewarded investors that aimed for the riskiest corners of the market.
Since hitting a peak of 1,416 back on March 26, the S&P 500 has slipped by about 4%, though many individual stocks are off 20% or more in recent weeks. Some of these laggards were only recently added to my portfolio, and as I think they are poised for much better days ahead, I'm not looking to sell them when the markets get rough.
But I do want to have cash to play with, now that many more bargains are emerging. And I'm making a pair of moves that should free up more than $15,000.
For starters, I am selling my 600 share position in the Direxion Small Cap Bear 3X Shares (NYSE: TZA), unlocking more than $12,000. This exchange-traded fund (ETF) is rallying as the market slumps, and I run the risk of getting out too soon if the market tumbles from here. It's the price I'll pay to build a cash war chest.
I'm also taking a very modest profit in my small 100 share position in toy-maker Hasbro (NYSE: HAS). The company just announced tepid first-quarter results, and I expect more of the same in the second-quarter. This is really a stock to own for the upcoming holiday season and 2013, and I mistakenly assumed the company would get credit long before that. Hasbro is making many investments now that will pay off down the road. Still, the stock is up modestly, and its lack of timeliness makes me want to focus my ammo elsewhere.
Make no mistake, I think Hasbro is still a great long-term core holding. It has powerful brands, robust cash flow, and a smart multi-year game plan. But it now looks like the wrong stock for this market. If the market punishes Hasbro, perhaps below the $30 mark, you'll be hearing from me again on this stock.
A final thought...
Though I don't intend to add to any of my current positions right now, I'd note the recent sell-off in Citigroup (NYSE: C) -- after a stellar earnings report -- makes that stock even more compelling for investors that don't yet own this financial services powerhouse. The macro headwinds are impeding shares right now, but the bottom-up analysis of this company hasn't looked this good in half a decade. Shares now trade for less than 70% of tangible book value. Were it not for the fact that it is already one of my largest holdings, I'd be a fresh buyer right now.
Action to Take --> Taken together, these sales position me to opportunistically pursue fresh bargains that the current market turmoil is uncovering. I will complete both transactions I mentioned above (selling TZA and Hasbro) 48 hours after you read this -- but with a caveat. If the market rebounds sharply between now and Wednesday, and TZA sells back down below $19.50, I will be inclined to cancel this move -- and I'll let you know if that happens.