Caterpillar (CAT) – 01-27-2010
Caterpillar’s outlook basically follows the general economic outlook. When people think the future looks good and there will be lots of growth, CAT goes up. When there is a pessimistic view, CAT goes down. But the reason I’m looking at it today is obvious. A clean break of support with good volume is always something to keep an eye on. The hammer (bullish reversal) candlestick pattern isn’t so good for bears though.
Since CAT seems to be leading the bearish trend of the S&P 500, it looks like a decent short for a general market downturn. If the market hangs around in distribution, this might be a good range bound play. And if the market turns bullish, I’d probably ignore this since there are other better options I could consider right now.
Becton, Dickinson and Company (BDX) – 01-06-2010
BDX has been on my watch list for a really long time – well before I started this blog. I realized I needed to write about them since they were one of my longer term positions over the past year, but I couldn’t find anything on lamdar about them when I looked them up. I think I started liking them around the time I got injured a lot and came to know the ACE brand pretty well. ACE was recently sold to 3M, but BD remains a solid company.
Solid, but not amazing. You won’t make a ton of money with them, but it moves slow enough that you most likely won’t lose a ton of money overnight either. I’m not sure I would like BDX so much if I didn’t have a previous affinity for them, but it’s always good to have some comfortable stocks to position trade if your alternative is cash/money market.
Johnson & Johnson (JNJ) – 11-13-2009
Everybody’s heard of Johnson & Johnson, although they probably make a whole lot of things that you don’t know about. It’s a pretty slow and boring stock, but in some cases that’s what you’re looking for. There was a false breakout in October the day before earnings came out, but other than that the channel has been pretty solid over the past few months. You can play the channel either as a long term low risk entry or as a swing trade (I like vertical spreads in this case). Or you can also just add it to the watch list and wait for a breakout.
Triggers
- Around $59 – Swing trade or position trade long with close stop
- Over $62 – Breakout long
- Under $59 on a general market downturn – Look for new value entry points
- Under $59 while market is still going up – Consider short
Green Mountain Coffee (GMCR) – 09-30-2009
GMCR has been a super hot topic amongst people talking growth stocks for a while now. They also had a breakout that’s been holding up over the past few days, but the volume gives a conflicting signal. I believe this stock is getting overbought and will eat it hard on the correction. Normally I like to play stocks like this with triggers on both sides, playing the upwards momentum on short term trades of the breakouts, but trying to catch the crash after it starts. Note that the key to this strategy is catching the crash AFTER it starts since you will get eaten alive trying to trade against momentum this strong. With the volume dwindling the way it has on this one, I’m guessing the crash is close enough to start paying attention though.
California Pizza Kitchen (CPKI) – 04-29-2009
Restaurants like CPKI, BJRI, and CAKE have all been on an absolute tear lately. PNRA just got killed after hours for merely meeting expectations today, so I think the sector is showing that its hopes are a little too inflated. If there is a market correction these will all be solid stocks to watch for short opportunities.
Triggers
- Above $17 – note the 52 week breakout and consider playing if there’s a lot of consolidation between now and then (and the economy is better)
- Below $14 – short
Berkshire Hathaway (BRKA or BRKB) – 03-09-2009
The infamous Berkshire Hathaway, aka Warren Buffett’s company. If you can’t afford the A shares you could always go for the B shares, which are exactly the same aside from voting rights. You’d need a whole lot of BRKA for your vote to matter anyway, so no biggie. So the good points of BRKA: they’ve been making some incredible deals and lowball offers that only Buffett could pull off; Buffett will continue to make those kinds of deals as the economy drops and more companies need it; Buffett’s previous picks have been generally good and are still solid (relatively). And the bad points: they have way too big of a stake in most companies to be able to dump losers; too big to maintain growth rates; Buffett (and Munger) will not be around forever.
I always wonder what effect it will have when Buffett and Munger are no longer running BRKA. On the one hand, he’s been grooming his successor for a while now, but on the other hand, it’s pretty hard to replace Buffett and Munger even if you’ve been training for decades. I’m sure the short term effects the day Buffett steps down will be tough to swallow either way. No single person means more to their company than Buffett, aside from possibly Steve Jobs.
Having said all that, if you were just going to be throwing money at the S&P 500 or some other index fund, you should probably consider BRKA when the market rebounds. It’s not going to diverge from the general market direction, but it tends to outperform the market enough that it’s worthwhile. That means the play is to watch this and just buy it whenever there’s a confirmed long term bull market and dump it whenever there’s a bear market. Pretty simple, right?