Set a Protective Stop on a Winning Position to Lock in a Gain of More than 20%

Set a Protective Stop on a Winning Position to Lock in a Gain of More than 20%

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Ratings changes included in this dated post

  • Set a protective stop loss at $16 for Physicians Realty Trust (DOC) shares.
  • Maintained “Hold” rating all seven positions in the Tematica Select List — [stock_quote symbol=”AGNC”], [stock_quote symbol=”DOC”], [stock_quote symbol=”PM”], [stock_quote symbol=”PYPL”], [stock_quote symbol=”RGC”], [stock_quote symbol=”SH”] and [stock_quote symbol=”T”].

Despite ending on a high note, this past week was another rough one for the stock market with the S&P 500 falling another 1.3%. The increasingly familiar cast of characters — oil price swings, economic growth concerns, renewed European banking issues and the notion the Fed may not really know what it is doing — all were factors in the market decline this week. Friday’s rebound was led primarily by comments from the energy minister of OPEC member United Arab Emirates that probably sparked some short covering ahead of the holiday weekend, but, all told, oil still dipped for the week, as did the market. A flurry of buyback announcements and insider buying, including leading members of Amazon ([stock_quote symbol=”AMZN”]) and JPMorgan Chase ([stock_quote symbol=”JPM”]), also helped move the market higher on Friday.

From a GDR portfolio perspective, the vast majority of our positons once again outperformed the S&P 500 this week with notable high fliers including Regal Entertainment ([stock_quote symbol=”RGC”]) and our insurance position ProShares Short S&P 500 ETF ([stock_quote symbol=”SH”]), which is great to have during turbulent times like these. The one sore spot this week was Physicians Realty Trust ([stock_quote symbol=”DOC”]), which saw its shares drop some 5% this week following comments from competitor HCP Inc. (HCP). With DOC not reporting its quarterly results until Feb. 29, let’s be smart, given the current market, and set a protective stop loss at $16, which will lock in a profit of more than 22% for subscribers that heeded my call to add the shares back in June 2014.  By comparison, the S&P 500 is down 5.5% since then.

While early trading on Friday likely left investors feeling a little better, the reality is there are still a number of concerns that will pressure the market, particular if the comments from United Arab Emirates turn out to be something other than what the market is reading.

We saw this just a few weeks ago and prefer to be cautious ahead of what could be yet another “buy the rumor, sell the news” moment. Other shoes yet to drop include what’s going on with the European banks, the latest corporate earnings and additional economic data in the coming two weeks that will give us a clearer picture of how the current quarter is doing. Earlier this week, Deutsche Bank and others cut GDP expectations for the first half of 2016, and, subsequently, their full-year expectations as well. I expect more to follow.

In the latest issue of Tematica Investing, I shared with you a number of confirming data points for our thematic approach to investing — if you haven’t read it yet, you can find it here. The good news is those confirming data point just keep coming. This week, Gallup reports that obesity rates have hit an all-time high here in the United States at 28% and the number of diabetes cases are at a record high. Those findings indicate that the Fattening of the Population has not diminished one pound. I’m investigating several investments on this theme that are even more attractive, given the year-to-date market drop of just more than 9% for the S&P 500. I’m also keeping my eyes and ears open for more such confirming data points, and, of course, I’ll continue to share them. In fact, I’m working on a new way to bring them to you each week. Stay tuned for more on this

While the market is frustrating for sure, I would much rather “measure twice and cut once” to steal an old carpenter saying when it comes to putting capital to work in this market. We still have roughly 25% of the S&P 500 companies yet to report their quarterly results. In the upcoming holiday-shortened trading week, we’ll be getting 56 S&P 500 company earnings reports. Earnings expectations for the index this year continued to move lower this week to hit $122.42 per share (3.7% year over year) and I suspect it still has room to drift lower as those remaining S&P 500 companies report their results. The expected earnings rise of 3.7% is being aided by huge stock buyback activity. Given the number of upsized share repurchase authorizations that continue to be announced, this is likely to continue in light of some of the significant pullbacks in stock prices. From a fundamental perspective, I’ll look to sidestep any and all financial mumbo-jumbo related to that by continuing to focus on operating profit growth and operating margin expansion.

Turing our gaze to next week, we have no portfolio companies reporting their quarterly results, but we do have a full plate of economic data coming our way. This includes several regional Fed manufacturing surveys and housing reports, as well as the latest Industrial Production reading. We also have both inflation indicators — the PPI and CPI — for January coming at us. But given the moves in oil and other commodities, we are not expecting any pronounced changes in those indices. Following Fed Chair Janet Yellen’s testimony this week, all eyes will be looking to read into the Federal Open Market Committee (FOMC) minutes from the Fed’s Jan 27th meeting when they are released this coming Wednesday, Feb. 17. My view remains that any next increase in rates by the Fed will come later rather than sooner, as I doubt the Fed wants to pour a combination of sand and water on the flailing fire that is the domestic economy amid the latest data.

Buckle up, it’s going to be another fun ride next week.

Enjoy the long weekend and I’ll update you again next week.

About the Author

Chris Versace, Chief Investment Officer
I'm the Chief Investment Officer of Tematica Research and editor of Tematica Investing newsletter. All of that capitalizes on my near 20 years in the investment industry, nearly all of it breaking down industries and recommending stocks. In that time, I've been ranked an All Star Analyst by Zacks Investment Research and my efforts in analyzing industries, companies and equities have been recognized by both Institutional Investor and Thomson Reuters’ StarMine Monitor. In my travels, I've covered cyclicals, tech and more, which gives me a different vantage point, one that uses not only an ecosystem or food chain perspective, but one that also examines demographics, economics, psychographics and more when formulating my investment views. The question I most often get is "Are you related to…."

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