How To Make 18 Percent Every Year (NYSE: ELY)
So you are wise to question ANY strategy that claims to regularly outperform the market.
But one simple small cap strategy has returned an average 18 percent gain annually for the past 11 years. Better yet, this strategy requires purchasing only one stock, and doesn't require that investors have their money in the market all year round.
This isn't some exotic trading strategy either. And there is no smoke and mirrors type trick to what I'm suggesting.
How Much Did You Make This Summer?
Every morning I wake up now I'm reminded that summer is essentially over, and we're entering the shoulder season here in the northeast. Some in Vermont call it stick season because soon the leaves will turn vibrant colors and fall to the ground, leaving only bare branches.
On this particular morning while considering what I could write about I began to reminisce about the summer months - and the companies discussed here in Small Cap Investor Daily. So I decided to revisit prior suggestions, and check out their returns since I wrote about these companies.
And I've got to say, I'm pretty pleased with the results. Of course, it's
always easy for those of us who recommend stocks for a living to cherry pick
the best results and only present those - while letting the 'losers' drift
from our minds.
13 Percent in Only 9 Trading Days
Two weeks ago in A Pattern of 18 Percent Average Gains, we looked at Callaway Golf (NYSE: ELY) and noticed a pattern in its returns. Due to the effects of seasonality, if you bought its stock on July 20th and sold it on April 1st of the following year, your average annual gain over the last 10 years would have been 18.4 percent. You also would have made a profit in 7 out of 10 years. Being right 70 percent of the time is pretty good in any market.
Extreme Sports Bring Investment Opportunities
The biggest action sports event of the year has touched down in Los Angeles, California. That's right - I'm talking about Summer X-games XVI. While Montreal had a bid in to host the 2010 summer X-games, Los Angeles extended its contract to become the venue's city for 2010.
A Pattern of 18 Percent Average Gains
Sometimes you have to look at what has worked in the past if you're going to have investing success in the future. And while one of the arguments against pattern investing is that efficient markets (we'll save a discussion of this for another day) quickly erode repetitive opportunities, some patterns still work - most of the time.
Right now I'm looking at a stock that is attractively priced, and in the last 10 years buying today (July 20th) and selling in a little over 8 months has led to an average gain of 18 percent. And 7 of 10 years have yielded positive returns!
The stock is Callaway Golf (NYSE: ELY). After seeing Ernie Els and Phil Mickelson in the Open Championship this past weekend, two of the top players in the world who are both sponsored by Callaway, I decided to take a closer look at the stock.
Georgia Gulf , Brunswick and Quaker Chemical lead small-cap percentage gainers
Also included among the results: West Marine Inc. (Nasdaq:WMAR), Sourcefire Inc. (Nasdaq:FIRE), Tenneco Inc. (Nasdaq:TEN), Callaway Golf Co. (Nasdaq:ELY), OfficeMax Inc. (Nasdaq:OMX) and Olympic Steel Inc. (Nasdaq:ZEUS).
Wilmington Trust, AngioDynamics and Providence Service lead small-cap percentage losers
Also included among the results: Radiant Systems Inc. (Nasdaq:RADS), Isramco Inc. (Nasdaq:ISRL), Callaway Golf Co. (Nasdaq:ELY), Electro-Optical Sciences Inc. (Nasdaq:MELA), Rubicon Technology Inc. (Nasdaq:RBCN) and Asset Acceptance Capital Corp. (Nasdaq:AACC).
Callaway Golf, CardioNet and Clayton Williams Energy among 52-week lows
Callaway Golf is the sole 52-week low
Union Bankshares, Callaway Golf and S&T Bancorp among 52-week lows
Matrixx Initiatives, Skilled Healthcare Group and Callaway Golf among 52-week lows
SQNM, SPRD, SAY, and MOV Lead Small Cap Trading
As of press time, 4:00 P.M. Eastern, stocks on the broader indices were up. The Dow was down 2.49 points to 8,762, the Nasdaq up 17.73 points to 1,860.13, and the S&P 500 was up 3.22 points to 942.42.
The Russell 2000, the index tracking the 2,000 largest small cap stocks, was up 4.02 points, or 0.77%, to 528.57.
Leading today's small cap gainers was Sequenom (Nasdaq:SQNM) up 45.97%. Sequenom provides genetic analysis products for biomedical research, molecular medicine, and non-invasive prenatal testing. As I've been saying for the past couple weeks, the sector rotation to defensive stocks like biotech and healthcare has started.
Other small caps showing leadership today include Spreadtrum Communications (Nasdaq:SPRD) up 23.76%; Satyam Computer Services (NYSE:SAY) up 34.93% on surprising the market with profits from the December quarter; Movado Group (NYSE:MOV) up 25.8%; and American Axle & Manufacturing (NYSE:AXL) up 22.45% after having broken through it's 200 day moving average for the second time since over a year ago and despite reporting that it will encounter production shutdowns due to the bankruptcy proceedings of General Motors (OTC:GMGMQ.PK) and Chrysler.
Showing the wrong kind of leadership in today's session-that is, the biggest decliner-was youth fashion creator Quiksilver (NYSE:ZQK) shedding 20.17% off it's opening price to be at $2.88 at press time. Shares dropped precipitously after it was announced that Quiksilver's profit was a penny shy of analysts' estimates.
Other stocks with investors seeing red today include LCA-Vision (Nasdaq:LCAV), provider of LasikPlus, down 14.11%; famed golf equipment maker Callaway Golf (NYSE:ELY) down 15.8% on news of it's dividend cut from 7 cents per share to just one cent per share; CBL & Associates Properties (NYSE:CBL) down 12.8% after releasing its full year outlook below consensus expectations and announcing an offering of 50 million shares of common stock.
*****Bravo. The government's handling of the financial crisis and recovery should be recognized as a masterful performance. At least, so long as you don't look too deeply into the numbers…
Bernanke and Co. have managed to restore confidence to the point that economist Paul Krugman has joined the ranks of those who think we are only a couple months away from actual GDP growth.
And they've accomplished this remarkable feat by stringing investors along with one carrot after another…
*****The first carrot was bailouts and stimulus packages. There was a time when stimulus spending was going to save or create 3.5 million jobs. Now, states are wondering where the stimulus money is. And the president is now promising 600,000 jobs will be created by stimulus spending.
But layoffs have slowed considerably according to the most recent non-farm payroll report. And Americans, feeling more secure in their jobs, may not notice that stimulus jobs won't be there, even if they need them.
*****The Public-Private Investment Program (PPIP) was supposed to remove toxic assets from bank balance sheets. Never mind that the banks probably never had any intention of selling at fire-sale prices and investors weren't thrilled with paying unreasonable prices, no matter how much of the transaction would be funded by the Treasury.
Geithner's "stress tests" resulted in banks raising their capital bases. That has helped remove the incentive to dump those toxic assets.
And as for the $74 billion banks have raised so far, do not misunderstand all the talk of "green shoots". These green shoots were not economic recovery per se. Rather, the green shoots were the banks stock prices shooting higher after accounting rule changes allowed them to show a profit where there was none.
In other words, the economic recovery is something akin to an illusion -- those inflated stock prices have allowed the banks to raise enough capital to appear healthy and last a little while longer…
*****Now that investors have breathed a sigh of relief that the problems with the auto industry are being resolved, the Chrysler sale to Fiat has been put on hold. Funny, I would swear a couple weeks ago, Chrysler would go bankrupt and millions would lose their job if Fiat didn't buy Chrysler right away.
*****And then there's TARP - the $700 billion boondoggle. Some banks have been asking to repay the money for months. But ever-sensitive to the all-important timing element of a good comedy, the Treasury has been unwilling to accept payment.
After all, why spoil the party by letting all the good news out at once? Why not wait until the rally is looking weak to release the news that, hey, maybe we'll accept TARP repayments after all? And maybe those payments will be more than anyone expects?
But let's make sure we string the announcement out as long as possible and let the threat of good news keep the bears at bay…
*****Of course, you can only fool all of the people for a while. Eventually, without a real pickup in economic activity, the millions of Americans who are barely keeping their head above water will sink. And then all the issues the "stress tests" glossed over (higher unemployment, rising foreclosure rate, etc.) will cripple the banks once again.
As economist Joseph Stiglitz of Columbia University recently told Bloomberg: "There's a chance that it might work...If it does, then they'll look like the brilliant general. But all these efforts also bank on the economy recovering and housing prices not falling too much further. Those are not safe assumptions."
P.S. I normally don't like to be the guy who says "I told you so", but for today I will. Back when the PPIP was first floated by the Treasury my diligent research in my Top Stock Insights advisory service spotted three stocks that would profit big time if the PPIP went through and profit modestly even if it did not. We did it. In a matter of weeks - not months or years - we profited on Legg Mason (NYSE:LM) for 8.16%, BlackRock (NYSE:BLK) for 9.1%, and AllianceBernstein (NYSE:AB) for 12.77%. Top Stock Insights readers booked these gains DESPITE the collapse of Geithner's PPIP plan. To find out how you can see steady and consistent gains no matter what happens, check out Top Stock Insights at http://www.topstockinsights.com/.
Ceradyne, Callaway Golf and Great Southern Bancorp lead small-cap percentage losers
Also included among the results: Blyth Inc. (Nasdaq:BTH), Oriental Financial Group Inc. (Nasdaq:OFG), Titan Machinery Inc. (Nasdaq:TITN), Medifast Inc. (Nasdaq:MED), Brown Shoe Company Inc. (Nasdaq:BWS) and Firstbank Corp. (Nasdaq:FBMI).
