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January 18, 2008
Zacks has an excellent service and if you scroll down you'll see some freebies along with some subscription services. I look at these on and off but you can always find some good information on their site. I get their daily recommendations but considering the way the markets have behaved so far this year, they've hit the slippery slope too.
 Investing In A Turbulent Market
by Charles Rotblut
Jan 17, 2008
Through Thursday's close, the Dow has lost more than 8% this month. The Nasdaq has fared worse, losing almost 11.5%. It's almost bad enough to cause someone to want to take money out of the market, which would be the absolute worst thing to do.
I realize that many of you are disconcerted about the way the markets have been performing lately. The credit crisis, weakening economy and negative earnings surprises are creating a great deal of uncertainty. When such conditions arise, it is normal to be nervous about your stock investments. However, you should never let nerves get in the way of making sound decisions about how to manage your portfolio.
In fact, you should use the current turbulence to redouble your stock research efforts. I realize that this might sound counterintuitive, but down markets create great buying opportunities. There are several good stocks that are "on sale" right now, if you know where to look.
In this week's Investment Ideas column, I'm going to show you many of the resources on Zacks.com, both free and premium, that you can use to find the good stocks. Zacks also provides wealth management services, if you would prefer to employ a professional money manager.
Dips Create Buying Opportunities
Sharp drops in the stock market, though painful, tend to be short-lived. For example, take into account the currency crisis that occurred in 1998. Shares of General Electric (GE) lost more than 14% of their value in a period of about two weeks.
Following this drop, the stock staged a four-day rally of more than 13%. More than half of those gains occurred in just two days.
An investor who chose to sell into the drop and then waited to buy back the stock until after the rally would have lost money twice. He would have lost money by selling the stock at a loss on the drop. (His loss would have been magnified if he closed a profitable position and was incurred capital gains taxes as a result.) He then would have also lost the money made by the stock's sharp and sudden rebound.
Not All Stocks Are the Same
Just because the market rebounds does not mean that every stock will rise along with it. In fact, there will always be stocks - in any type of market environment - that deserve to drop. These are stocks with falling earnings estimates. (You can view earnings estimates for approximately 4400 stocks by simply calling up a quote, clicking on "company reports" near the top of the page and then clicking on "estimates".)
Conversely, there are many stocks that will go up when the market rebounds. These are companies with rising earnings estimates. Every day, we publish a list of more than 200 of these stocks - the Zacks #1 Rank List (premium).
You should always read the quarterly earnings press releases for the stocks you own and the stocks you are considering buying. Pay particular attention to whether revenues are rising or if the income growth is being caused by cost-cutting. Revenue growth is much more sustainable than cost-cutting measures.
Also, look for any discrepancy between the pace of net income growth and earnings per share growth. Stock buybacks may artificially boost earnings per share growth, even when net income is declining.
A case in point is Family Dollar Stores (FDO). The discount retailer reported fiscal per share earnings of 37 cents per share, a penny above year-ago levels. Net income, however, decreased 4.1% to $51.9 million. The reason for the disparity? Share buybacks. Shareholders may have gotten a bigger slice of the earnings pie (fewer shares outstanding), but the profit pie itself shrunk.
You can view earnings reports for any stock by calling up a stock quote and then clicking on "News" near the top of the page.
If a stock you own seems suspect, sell it. Regardless of whether market is in a bull or bear mode, you should never hold onto a suspect stock. There is always something better to buy.
How to Find Good Stocks
Zacks.com has a large amount of resources available to help you find stocks that are likely to do well, regardless of how the market is performing. Here is a small sample of these resources.
Bull of Day (free) - Every weekday, we highlight a stock recommended as a long-term buy from Zacks Equity Research. (I also discuss a weekly Bull and Bear pick on Your Money Radio with Chuck Jaffe of MarketWatch. You can listen to the show our on audio page - just click on "Bull and Bear of the Week". This week's picks are Pozen (POZN) for the Bull and Overstock.com (OSTK) for the Bear.
Zacks Equity Research Buys (premium) - Read both analyst and snapshot reports about the stocks we think are most likely to outperform the markets over the long-term.
Zacks Rank Buy Stocks (free) - The analysts at Zacks.com feature four different Zacks #1 Rank ("strong buy") and Zacks #2 Rank ("buy) stocks, based on the four primary investing styles: Aggressive Growth, Growth & Income, Momentum and Value.
Zacks #1 Rank List (premium) - Since 1988, Zacks #1 Rank stocks have generated an average annual return of 32%.
Custom Screener (free) - If you know what characteristics you like in a stock, our customer screener will enable you to find suitable investment candidates.
Profit Tracks (premium) - These prebuilt strategies have consistently outperformed the markets.
Other Resources
In addition to our free and Zacks Premium resource, Zacks provides a wide range of products designed to fit your individual trading style.
Zacks Education - This new section discusses the practical application of various investing concepts. Plus, you can also read our free guides on how to best use Zacks.com for your specific style of investing.
Zacks Top 10 for 2008 - Our Top 10 Stocks for 2007 earned investors a 37.7% return. The 2008 list was just released yesterday, Jan 16.
Research Wizard - This powerful stock screening and backtesting program comes with over 650 data items (versus just over 100 criteria for our custom screener). Plus, with the Research Wizard's Advanced Backtester, you can pinpoint the exact characteristics that will make a stock a winner.
Zacks Wealth Management - Our wealth management group combines the power of the Zacks Rank with professional money managers.
Charles Rotblut, CFA is the senior market analyst for Zacks.com. |
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