Subscribers to Richard Suttmeier’s Sector Report and Value Raider for
Small Stocks have learned to use good until cancelled (GTC) limit orders to
add to positions on weakness to a Value Level and to reduce holdings on strength
to a Risky Level, using Pivot prices in-between to capture short-term
volatility. You should too!
Finding the Right Stocks
The Sector Report model portfolio has a minimum of 15 stocks and a
maximum of 20 stocks. Each has a market capitalization above $200 million, trade
above $10 per share, has a strong buy or buy rating according to ValuEngine, and
are undervalued by at least 10% when they enter the portfolio. I like these
stocks to be trading lower, and advocate dollar-costaveraging to build up to
four trading positions in each stock. Then profits are taken on strength as
these value plays come back into vogue.
Today’s Top Pick
Gardner Denver, Inc. (NYSE: GDI) – makes compressor and vacuum products used
in manufacturing, process applications, materials handling, and power air tools.
They also make fluid transfer products such as pumps, water jetting systems, and
related aftermarket parts used in oil and natural gas well drilling, servicing
and production, and in industrial cleaning and maintenance. The stock entered
the Sector Report model portfolio at $37.10 on August 8, on an upgrade to strong
buy by ValuEngine, the fundamental stock screening service I use. GDI’s fair
value is $45.06, so there is upside to my semiannual risky level at $44.69,
where profits should be taken. The Buy and Trade Strategy advocates adding to
this position on weakness to my semiannual pivot at $37.59 and to my annual
value level at $30.32.
The Value Raider model portfolio allocates $100,000 virtual dollars into
low-priced speculative stocks. Each has a market capitalization above $100
million, trade below $10 per share, has a strong buy or buy rating according to
ValuEngine, and are undervalued by at least 10% when they enter the portfolio.
Whether you agree with my fundamental valuations, or technical observations does
not really matter, as my proprietary analysis of nine years of data provides the
levels at which to Buy and Tr a d e !
Where to Buy and Where to Sell - A “value level” is a price at which
buyers should add to positions on share-price weakness. A “risky level” is a
price at which sellers should reduce holdings on share-price gains. A “pivot” is
a value or risky level that was violated in its time horizon, acting as a magnet
during the remainder of that time horizon. These levels are calculated in weekly
(W), monthly (M), quarterly (Q), semiannual (S) and annual (A) time horizons,
based on the past nine closes in each time horizon. My theory is that the closes
over a nine-year period are the summation of all bullish and bearish events for
that market or specific stock. These levels are the most important element of
my Buy and Trade Strategy.
I also provide an analysis of the US Capital Markets – US Treasury yields, the
key commodities, and major currencies. I have a few of the economy, and US
stocks and that keys asset allocation for both Sector Report and Value
Raider.
A Recession in the US Economy is Unavoidable
The weakening housing and real estate markets will continue to be a drag on US
economic growth for the next three years or so. Community and regional banks
will experience losses worse than the housing recession of 1988 through 1992.
The consumer continues to spend, but that sector of the economy is built on a
“house of credit cards”. My call is for Recession in 2008 – 2009.
So far the stronger than expected global economic backdrop has kept the major US
equity averages stronger than they should be at this late stage of the economic
and market cycles. The Dow Industrials and S&P 500 may have began
the fourth quarter 2007 at new record highs, with the NASDAQ at a new
multi-year high, but that does not change the fact that two economically
sensitive averages lag. While the broader averages may have reached new
milestones, the Dow Transports, the benchmark for the old economy and the
Philadelphia Semiconductor Index (SOX), a benchmark for new economy tech
spending were 9% below their 2007 highs. Transports hit a new all time high in
July and the SOX as been below 560.00 since May 2002.
Investment Strategy – Manage your equity allocations at a maximum of 50%
of the end of 2006 exposures.
