2016-07-30
An industry group I like these days are the Autos. In fact, when Ford Motor Company (NYSE:F) unloaded a terrible earnings report before the market open on Thursday, I soon afterwards bought some General Motors (NYSE:GM). Unlike Ford, GM recently released a solid quarter-yearly report.
In my Cara 100, I have GM rated 7th best for Income and 8th best for Value. I rate the Overall quality at 90%, which is 33rd best in the Cara 100. Out of my whole universe of 1,059 companies I study in detail, I rate GM in Overall Quality as 203 best; however, for Value and Income, I rate GM 31 and 72 out of 1,059 respectively. That is a world-wide universe of stocks that trade on 13 international exchanges plus NYSE, NASDAQ and Toronto.
So, I bought on industry weakness, but with the knowledge that my system that rates each company on a relative fundamentals basis has good scores for GM.
You see; you have to learn how to buy on weakness and sell on strength. Yes, it’s a contrarian perspective; but, also a key to success.
Those who aspire to contrary thinking might want to start looking at the Oil & Gas sector. In addition to the weak earnings reports and guidance, there is the building consensus of analysts as well as the media trolls serving to push prices to cycle lows. But for those who might be interested in buying into Oil & Gas, its mostly an institutional investor long-term play where purchases are made into daily or short-term weakness over the course of a couple months. Besides, your big picture outlook for the whole market should be bullish as well, and there are many in the market today who are bearish.
The Energy Sector Bullish Percent Index has dropped from 95% in March to just over 55% this week. Of course, Exxon Mobil reported the lowest quarterly profit in over 15 years and Chevron’s third straight quarterly loss is the longest string in over 25 years, so it’s logical to see why the Bulls are pulling out of the market.
http://stockcharts.com/freecharts/gallery.html?$BPENER
For individual stocks, my Cara 100 recently included a couple based on their high Quality scores, but may be replaced in 3Q2016. In my database, these companies have dropped in Overall Quality and their stocks have also fallen out of favor with investors this year: Chevron Corp (NYSE:CVX) and Valero Energy Corp (NYSE:VLO).
Presently I hold no positions in either stock though Valero is a particularly interesting contrarian thought.
VLO at $52.28 could be a Value play if bought on weakness in the next few days. The company is a refiner, which is an industry that is full of bad news, which seems to be getting worse. Their reported margins are so small; these companies are cutting production.
Now seems to be the time to buy, for me as well. But, always study the company before you trade in its stock. Here is a link to a report I use.
As you can see from this report, the Valero revenues and profits have plunged. The good news is that the Consensus of the 20 Analysts who follow the company is fairly positive with 2016 being the cycle low for revenues and profits, which are expected to build going forward.
Clearly Valero is not a Growth company. With a Yield of 4.60% presently, VLO could be good for income and it is also a Value play.
The earnings reports for the major high-tech companies were also in focus this week. There were ones that soared (Facebook, Amazon, Alphabet/Google and Apple) and some that were shot down (Twitter and Netflix). I was intending to write about them, but ran out of time.
The stock market is really a market of stocks with good companies and bad and stocks that include many that are attractive and many that are unattractive depending on your time horizon. Contrarian thinking based on solid fundamental data can help you separate them.
Enjoy your week. This is a holiday weekend in Canada.
/Bill
