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In a February 1, 2018 Brush Up on Stocks update I wrote:
A 5%-10% corrections can and will happen in the stock market at any time. With sentiment so high, the market is that much more vulnerable to this kind of correction. This is a time to remain cautious, avoid putting on too many trades, bring down margin, take some profits if you have been debating whether or not to do this, and trim dubious positions.
Have some buying power now in the form of margin or cash, to take advantage of any selloff that does develop. Short a market index as a hedge. The risk of runaway upside is probably limited.
What happened next? Over the next six trading days, stocks fell over 10%.
The Brush Biotech 5, a select group of my favorite biotech stocks highlighted as buys on August 14, 2017, were up 17.2% by September 6, 2017 compared to 8.5% for the IBB biotech ETF.
And here’s how some recent ideas performed, as of the middle of May. (I stopped updating successful trades then, but they continued.) Page down for a description of my system.
* 9% in 24 hours
A swing trade highlighted at 2 pm May 9 was up 4% by the close, and 9% May 10.
* 13% in a day; 32% in four trading days
An energy stock singled out and highlighted May 4 was up 13% by the close on May 5, and 32% by May 10.
The Brush Energy Eight select energy stocks, also suggested May 4, were up 4.7% by the close May 5.
In contrast, the energy ETF XLE was up 1.6% and the S&P 500 ETF SPY was up 0.46%.
* Five stocks, 17 days, 16% gains vs. 1.8% for the S&P 500
The five main stocks suggested in the April 10, 2017 issue advanced 16% by April 28. The S&P 500 was up 1.8%. My five suggestions were up 31.7%, 18.8%, 10.5%, 10% and 9.2%. This group excludes specialized yield and under $5 suggestions. Including those five names, all stocks from the April 10 issue were up 9.4% compared to 1.8% for the market.
* 20%-30% gains in a month
A stock highlighted on March 15 and reiterated on April 10 was up 20%-30% by April 13.
* The Brush Biotech 15 portfolio up 32.7%, or three times the biotech sector, in 14 months
The eight larger cap names in the Brush Biotech 15 portfolio (introduced January 26, 2016) were up 48.8% as of mid March 2017, or almost five times the 10.5% return for the iShares NASDAQ Biotech ETF (IBB). The entire Brush Biotech 15, including the seven names that started with market caps below $500 million, was up 32.7%. That’s about three times the 10.5% return for the IBB.
* 10% gains in four hours
A trade/buy and hold name suggested mid-day March 17 was up 10% by the close.
Reader comment: “I bought [stock XYZ] this morning after receiving your BUOS update and it’s up 10% at market close. I’ve made about 30k since signing up, so am quite pleased. Good work sir!” – VP in TX
* 18%-25% in two trading days
A stock I singled out as a buy on March 9 was up as much as 25% and closed up 18.5% in two trading days.
* 27% in two trading days
A stock I singled out in a special update February 16 was up 27% in two trading days.
* 20% in 24 hours; 78% in a week
A stock I highlighted February 14 in a special update, because of an unwarranted selloff, was up 20% in 24 hours, and 78% in six trading days.
* 15% gains in three weeks
A large cap swing trade I highlighted on January 20, 2017 was up 15% by February 10.
* 16% gains in an afternoon; 102% gains in a year
A swing trade I suggested at mid-day January 9, 2017 was up 16% by the end of the day. This stock, a long term holding and a regular trading position, is up 102% since I reiterated it on February 11, 2016; 109% since I reiterated it on March 22, 2016; 78% since I reiterated it on January 20, 2016; and 37% since I reiterated it on October 11, 2016. It is up 78% since I introduced it in my stock letter in May 2014.
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* 400% gains in a year
Ariad Pharmaceuticals (ARIA) was up 72.8% January 9, 2017 on news it is being bought out by Takeda, a Japanese pharmaceutical company.
ARIA is up 277% since I introduced it in my stock letter in January 2015, mentioning it as a buyout candidate at the time. It is up 400% since I reiterated it on February 7, 2016, and 249% since I reiterated it on February 11, 2015.
I believe 2017 may be the year of the biotech takeover since big biotech and pharmaceutical companies have lots of cash but sparse drug pipelines. Any repatriation of funds under tax reform introduced by Donald Trump should also help, since big biotech and large pharmaceutical companies have lots of cash abroad. I believe at least a half a dozen biotech suggestions in Brush Up on Stocks are potential buyout candidates.
* 812% gains in five years
Incyte (INCY), one of my favorite biotech stocks, was up 10% January 9, 2017 on news that it is broadly expanding its partnership with Merck (MRK) in cancer drug development.
Incyte is up 812% since I first suggested it on December 8, 2011. It is up 77%-78% since I reiterated it on January 28, 2016 and March 24 2016. And it is up 33% since I reiterated it on October 13, 2016. I consider the stock to be more of a hold than a buy at current levels, though I am not trimming positions.
To find successful investments and trades like these, I use skills I’ve developed over the years at Columbia Business School, Johns Hopkins University, the New York Times, the Economist Group, and MarketWatch. Here are some more examples.
* 9%-30% gains in eight trading days
Three recent swing trades in biotech did exceptionally well. One singled out on December 27 netted 9.6% gains in seven trading days. Related short put sales are up almost 100%. Another highlighted on December 23, 2016 netted 15%-20% gains in eight trading days. A third highlighted on November 23, 2016 and December 22, 2016 netted 18%-30% in 8-32 trading days.
* 53.3% gains in five months vs. 9.3% for the S&P 500
Back in June, 2016, the market was panicked about Brexit. My own analysis showed that the economic damage to the U.S. and Europe from Brexit would not be so bad. I suggested ten equities to buy as a contrarian play, when most people were selling. Within two days, those ten names were up 11% vs. 5.2% for the S&P 500. By the middle of November, my ten picks were up 55.3% compared to 9.3% for the S&P 500.
* 29.6% gains vs. 1.53% for the S&P 500 in less than four months
On July 31, 2016 my system put out a strong buy signal on the banking sector. I suggested five banks to subscribers. By November 21, they were up 29.6% compared to 1.53% for the S&P 500. Plus they all kicked out dividends along the way. The five yielded around 2% at the time, on average.
* 22 percentage points of outperformance in a month
On October 13 I asked my subscribers to buy biotech as a contrarian play because the group was so disliked. I suggested the five biotech stocks that came up the strongest in my system. By November 17 they delivered 22 percentage points of outperformance. They were up 25.3% vs. 2.6% for the market (SPY) and 7.4% for biotech overall (the IBB).
* 27.8% gains in three months vs. 0.3% for the S&P 500 (plus an unwitting nod from Warren Buffett)
In early August I suggested airline stocks which suddenly ranked high in my system. By mid-November they were up 27.8% compared to 0.3% for the S&P 500. Later, we learned that Warren Buffett was buying airlines around the same time my system favored them.
* 18 percentage point market outperformance in three weeks
On October 24 I wrote that “Biotech sentiment has turned particularly sour, suggesting it is a good time to ramp up buying there.” I singled out three prior suggestions and introduced two new ones. Within three weeks those five names were up 20% compared to 1.6% for the market (SPY) and 7.2% for the sector (IBB). The five stocks were up 7.3% to 29.7%.
* 4%-5% market gains in two weeks
On November 1 I noted that stocks overall were starting to look more buyable because sentiment was turning negative. I offered one simple publicly available indicator as a guide to the best time to buy. That indicator triggered on November 2 and 3. Subscribers who bought the broad markets on those dates were up 4%-5% in two weeks.
* Brush Biotech 15 model portfolio (buy and hold) 3x-7x the IBB
The eight larger cap (and theoretically safer) names in the Brush Biotech 15 model portfolio (introduced January 26, 2016) were up 44% as of November 17, 2016, or 7.3 times as much as the 6% return for the IBB. The entire Brush Biotech 15, including the seven riskier names that started with market caps below $500 million, were up 17%, or nearly three times the 6% return for the IBB.
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A system that works
The fake Brexit crisis is a classic example of the kind of contrarian set up I seek for subscribers to my stock letter, Brush Up on Stocks (twice a month, with updates in between).
* I use a combination of about a dozen sentiment and technical measures plus macro analysis to identify buyable market or sector sell offs.
* Then I suggest groups of individual names (for diversity) that look good by my stock selection system. My system favors qualities like the right kind of insider buying and ownership, reasonable valuations, financial strength, and a plausible growth story.
* I have no hidden agendas or conflicts of interest.
No matter who is president, what’s going on in China, or who wins the World Series, the market, or a sector, is always going to go into panic mode at some point, creating contrarian opportunities. It’s just human nature, sad to say. Groupthink and the herd mentality always come back around and create opportunities.
It’s just a matter of having the right tools to identify them and the best names to buy, and the discipline to act. Trust me, it’s not always easy. The best purchase decisions are always the ones that are the toughest to make. But I can help guide you there. While you take care of your business, I’ll be your eyes on the market.
Of course, the trades cited above are examples of some of the better contrarian ideas I have suggested. They don’t all work out, it goes without saying. No system is perfect. However, my system regularly kicks out favorable buy and hold stocks which on the whole outperform, according to my analysis of every single stock I suggested from a sample period of about three years. Page down on the performance page for details of this analysis.
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Want to know more?
To find the best stocks for you, I use the skills I’ve learned over the past two decades at Columbia Business School, Johns Hopkins University, the New York Times, and the Economist Group, among other major business publications.
I look for the right kind of insider buying, cheap relative valuation, smart money ownership, financial strength, good growth potential, and opportune sentiment extremes since I am a contrarian investor. My system has worked well over the years. I suggest about 10-20 new stocks per month.
Importantly, I offer unbiased analysis. I have no conflicts of interest. Many brokers, financial advisers and analysts have hidden agendas. I don’t.
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