Why Luke Lango is back to buying … Eric Fry is taking trading profits but suggesting buying long-term core holdings … four sectors on Louis Navellier’s buy list today
As I write Tuesday, the market is selling off on news that Moody’s has downgraded a handful of banks.
It’s a continuation of selling pressure that began last week when Fitch downgraded U.S. government debt.
But if Luke Lango is right, this weakness is nearly done.
If you’re new to the Digest, Luke is our hypergrowth expert and the analyst behind Innovation Investor. While most analysts were caught off guard by this year’s bullishness, Luke has been a roaring bull since late last year.
But in recent weeks, Luke has been calling for a short-term price correction. While still overwhelmingly bullish, his take was that the market simply climbed too far, too fast, and needed a breather.
Last week finally brought such a pullback. Here’s how Luke analyzed it in last week’s Innovation Investor Daily Notes:
After rating agency Fitch downgraded its rating on U.S. debt – the first rating downgrade of U.S. debt since August 2011 – the stock market crashed big-time…
We’ve been expecting a short-term pullback for the past two weeks. We’re confident this is that pullback. It won’t last long or be that deep; and it’ll end with stocks rebounding strongly…
Once technical buying conditions normalize, stocks should bottom, and more important economic factors – like falling inflation and improving earnings – will push stocks back into “rally mode.”
Luke put his money where his mouth is and recommended new buys last Friday.
Back to Luke:
…It is our belief that the stock market’s most recent pullback is nearing an end. All we’re doing right now is clearing out the last of the sellers.
That’s why we went on a big stock shopping spree [last Friday] morning and added multiple new stocks to our portfolios.
Luke isn’t our only analyst who believes now is the time to put money to work in the market
Our macro expert Eric Fry falls into this camp – but he has his own twist.
One on hand, he’s been selling – taking profits on surging trades. But on the other hand, he’s advising his readers to take advantage of the recent market weakness by buying strong, long-term holdings.
To explain the difference, let’s begin with the selling.
Last Friday, Eric’s Speculator subscribers locked in 300% gains on a partial sale of their Amazon call options (a big “congrats” to all these subscribers).
Even though Eric expects Amazon shares to continue trending higher between now and the option’s expiration date some months from now, he thinks it’s wise to capture gains along the way.
This is a great example of smart trade management. Though Eric could hold out for even larger gains, skimming profits along the way is how pro traders make sure a great trade doesn’t slip away if market conditions crumble. Eric has often reminded his subscribers that “little pigs get big, big pigs get slaughtered.”
But at the same time Eric is selling in his trading portfolio, he’s recommending buying core “Forever” stocks
Here he is explaining:
The market fell off a cliff on Tuesday, as a result [of the Fitch downgrade] … even though the market has already priced in the longer-term factors Fitch presented as “new information.” Basically, it was a scare tactic, and it doesn’t really mean much…
Not only have market lows primed the way to higher highs, but when the situation appears bleak, know that the stocks you perhaps ordinarily couldn’t afford (or want more of) are now “on sale.”
Which means that now could be the time to build your “Forever Stocks” portfolio.
Eric explains that “Forever Stocks” are your portfolio’s core holdings, comprising roughly 25% to 35% of your holdings. They’re the ones you cling to through thick and thin, unless the rationale for owning them changes significantly or you decide to replace one of them with a different stock.
Here’s Eric with the details:
So, what type of security is a Forever Stock?
I’m talking about dominant, world-class businesses…
While there’s no set definition of a world-class business, I believe they share at least four critical traits:
- Forever Stocks possess an impregnable competitive advantage over their competitors — a “moat.”
- Their competitive advantage shows itself through rising revenue and cash flow. (Earnings should be rising as well. But accounting gimmickry can easily manipulate profits, so I generally ignore reported earnings and focus mostly on revenue and cash flow.)
- They use cash flow to enrich shareholders, through rising dividend payouts, share buybacks, astute acquisitions… or a combination of all three.
- They maintain a healthy balance sheet in order to preserve their financial flexibility and resilience.
Eric makes it clear that Forever Stocks aren’t immune from selloffs during a bear market. But such losses are a small price to pay for big long-term gains.
The challenge is it’s tough to buy when others are selling, and to sell when others are buying. In making this point, Eric quotes the late investing legend Sir John Templeton:
To buy when others are despondently selling and to sell when others are avidly buying requires the greatest fortitude … and pays the greatest reward.
Eric and his Speculator just sold as greedy investors snatched up Amazon shares after its great earnings report last week…and he’s now urging buying as fearful investors bail out of today’s jittery market.
Sir John Templeton would be proud.
Finally, legendary investor Louis Navellier is also bullish on select sectors today
Let’s jump straight to Louis’ analysis in Growth Investor:
My favorite economist Ed Yardeni has dubbed the current economic environment as a “rolling recovery.” In other words, the sectors that slipped into a recession during the “rolling recession” have now started to recover and fewer sectors have persistent weakness…
All of this bodes well for continued strength in the stock market, with more sectors presenting tantalizing investment opportunities.
There are four improving sectors where Louis is finding good investment opportunities today:
- semiconductors/cloud computing
- oil refining/integrated energy
- homebuilding
- consumer discretionary
We don’t have room to profile all of them in today’s Digest. So, I’ll highlight just one of the sectors that’s been gaining momentum in recent weeks – oil.
The price of West Texas Intermediate Crude is now back above $80 a barrel, having climbed 20% since late-June.
Here’s Louis explaining what’s behind the climb:
The resurgence in energy and energy-related stocks has been impressive of late. There are a few reasons for the recent strength, but it primarily comes down to supply and demand.
China has imported more crude oil this year than last year. In the first six months of the year, China imported 11.4 million barrels of crude oil per day. That’s 11.7% higher than a year ago. Interestingly, 2.13 million barrels of oil per day came from Russia. So, China has boosted its crude oil stockpiles by taking advantage of cheaper Russian crude oil.
Interestingly, though, the amount of oil leaving the west coast of Russia to be shipped around the world is now at a seven-month low. The OPEC+ production cuts have also gone into effect, with Saudi Arabia cutting production by two million barrels per day.
So, supplies are tight, and crude oil prices have meandered higher.
The easiest way to play this is with XLE, which is the Energy Select Sector SPDR® Fund. It holds energy heavyweights including Exxon, Chevron, Schlumberger, Marathon, and Valero. It’s up 15% since June.
For Louis’ favorite oil stocks in Growth Investor, click here.
Finally, one sector that all three of our analysts agree is headed higher is Artificial Intelligence
Two weeks ago, Eric, Louis, and Luke sat together to discuss the AI investment opportunity before us today. As part of the evening, they unveiled a brand-new AI focused portfolio of 10 stocks they believe are poised for a huge run in the coming years as this technology shapes our world.
I‘ve just learned they’ll be adding an 11th stock to the portfolio later this week. According to Louis, it trades at about $29 a share but is growing its revenues faster than Google, Microsoft, Amazon, and Apple combined.
If you missed last week’s roundtable AI discussion between our experts, you can watch a free replay of it here.
Pulling back, we’ve covered a lot of ground in this Digest as far as today’s opportunities, but there’s one commonality – all three of our analysts are buying despite the market volatility. That says a lot.
Have a good evening,
Jeff Remsburg
