Insights from the “A-Team”
Linking multiple computers can exponentially boost processing power. The same principle works with the minds of human beings.
Every day, the financial experts at Investing Daily apply their collective brain power to give you the best possible investment advice.
As market volatility breeds greater investor uncertainty, now’s a good time to tap the latest views from our analysts. Think of them as your personal “A-Team.”
Below, I’ve cherry-picked compelling assertions from recent Big Interview sessions. Bold copy represents my questions.
- Amber Hestla, chief investment strategist of the trading services Income Trader, Profit Amplifier and Maximum Income.
The average age of a bull market is 4.7 years. This bull run is more than 10 years long. The bear is stirring. How long before we get a major correction?
I’ll agree with you on the average length of a bull market. But bull markets don’t die of old age. They end when we run out of buyers. There’s no sign that’s about to happen.
The Fed and central banks around the world are cutting rates. In Europe and Japan trillions of dollars of bonds carry negative interest rates so you are guaranteed a loss when you buy. Yet, there are buyers for these bonds because pension funds and insurers need the bonds in their portfolios to cover benefits.
As long as rates are low, bonds are unattractive and that pushes investors to stocks. There is a lot of risk in the world right now and that pushes investors to safe havens, like U.S. stocks.
- Jim Pearce, chief investment strategist, Personal Finance.
Stocks are overvalued and yet the major U.S. stock market indices continue to hit new highs. Goldman Sachs, Morgan Stanley and JPMorgan Chase all predict a correction of at least 10% in the third quarter. Does this sound accurate or unduly pessimistic?
I don’t see how we’ll get through the remainder of the year without a stock market correction of some sort. The stock market has already fully recovered from last year’s correction, and then some. However, much of that gain has been the result of expanding earnings multiples, and not from a gain in earnings.
The forward price-to-earnings ratio for the S&P 500 is currently sitting at 18, which is about 10% above its five-year average multiple, so a drop of that magnitude would not surprise me.
For the stock market to drop a lot more, there would have to be a significant macroeconomic or geopolitical event that is not currently factored into the financial models.
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I doubt the White House will initiate any activities heading into the next election cycle that might drive the economy into a recession before then.
- Robert Rapier, chief investment strategist, Utility Forecaster.
U.S. shale producers aggressively expanded and took on debt to boost production, when oil prices were rising. Now that prices are slumping again, they’re caught in a vise. Many are trying to drill their way out of their dilemma. Isn’t this strategy doomed to failure?
Yes, which is why one must be selective in choosing oil producers in this environment. Stick with the big guys who can survive in a $50/bbl oil environment. Shale oil production is already beginning to slow, and as soon it begins to decline the big guys will still be standing, and they will benefit enormously.
A small producer that can survive $50 oil will see an even bigger price spike when oil prices make a return to that $70 level, but there’s a whole lot more risk there. If you can stand the risk, a small producer that isn’t highly leveraged may be a good bet — not only from the standpoint of oil price recovery by also as a takeover target.
- Nathan Slaughter, chief investment strategist of The Daily Paycheck and High-Yield Investing.
Which sectors look the most appealing to you right now?
Given earnings headwinds, geopolitical uncertainty, and the generally overvalued state of the market as a whole, I would dial back exposure to more cyclical areas in favor of defensive sectors.
This could be a favorable climate for utilities. I am also overweight real estate investment trusts (REITs). Real estate has a low correlation to traditional equities, and property owners tend to have strong cash flow visibility. The prospect of cheaper borrowing costs sure doesn’t hurt either.
I’ve also been doubling down in the energy sector, which according to FactSet has the highest potential upside (19.9%) between current stock prices and consensus target prices.
- Jim Fink, chief investment strategist, Options for Income, Velocity Trader, and Jim Fink’s Inner Circle.
What’s the difference between investing and trading?
This quotation from Benjamin Graham, the father of value investing, sums up the difference: “In the short run the market is a voting machine. In the long run it’s a weighing machine.”
Investing is a long-term proposition, where the value (i.e., the weight of discounted cash flows) of a stock eventually determines its price. By contrast, trading is a short-term activity, where supply and demand (i.e., the votes of buyers and sellers) determine a stock’s current price.
Successful traders use a plan and have the discipline to stick to it. The fact that some traders are billionaires suggests that short-term trading can be profitable if you do it right.
- Scott Chan, lead analyst, Real World Investing and The Complete Investor.
Many analysts are sounding the alarm about China’s so-called “debt bomb.” Is this a threat to the world’s second-largest economy and could it trigger a global financial crisis? Or are concerns about Chinese debt overwrought?
Although we shouldn’t just dismiss China’s elevated debt level, I doubt China’s debt will trigger anything close to the financial crisis of about 10 years ago.
Unlike, say, America’s debt, most of China’s debt is owed to itself. China’s foreign debt is only about 13% of GDP, very low by world standards.
China also has a high domestic savings rate hovering near 50% of GDP, roughly twice the world average. In addition, unlike the U.S., China’s one-party authoritarian government gives Beijing more control over its economy.
- Jimmy Butts, chief investment strategist, Maximum Profit.
What are some tactics that individual investors can deploy to safely make money in the markets? From my perspective, it starts with three steps: performing due diligence, sticking to the fundamentals, and remaining wary of the herd mentality.
I agree with those three principles. Everyone should do their own due diligence. There’s no one-size-fits-all investment. You have to find what works for you. I see Maximum Profit as a tool to help investors wade through all the ticker symbols out there. I do provide analysis on each of the stocks that are recommended, but it’s always wise to do your own research so you’re comfortable with the investment and understand all the risks.
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If you can work your way through a company’s fundamentals, you’re already ahead of most investors. I came from the traditional side of investing that is value oriented. And Maximum Profit has a fundamental component to its algorithm. We call it Cash Flow Relative Strength, or CFRS for short. We want to make sure the system isn’t flagging fly-by-night companies, and one of the best line items to help determine that in my opinion is cash flow.
Cash flow is the life blood of any business. Unlike sales and earnings, it’s much tougher to “massage” or fake.
- Stephen Leeb, chief investment strategist, The Complete Investor and Real World Investing.
We’re enjoying the longest bull market in history. How long can the good times last?
The market won’t win awards for technical beauty or captivating value — not with every measure of small-fry performance badly trailing big-cap gains. But give it its due for grittiness. This is a market that won’t quit.
And for that, give credit to those guys at the Fed who have done one of the fastest about-faces in market history.
Back in the day — by which I mean earlier this year — the Fed seemed set to tighten and then tighten again. Now the question is how dovish is dovish. The trade war and its heavy weight on economic activity likely has scared the daylights out of the Fed.
But whatever has motivated the Fed’s change of heart, the market — while overdue for a correction — seems unlikely to do more than take a breather. And while the market isn’t cheap, there still are plenty of cheap stocks.
Editor’s Note: I’ve just presented a “greatest hits” compendium of my recent interviews with our top strategists, but I’ve only scratched the surface of their capabilities.
If you’re looking for big gains with reduced risk, an analyst to consider right now is Amber Hestla.
Amber is a financial expert but she’s also a military veteran. Amber served with distinction in Operation Iraqi Freedom. While deployed overseas with military intelligence, she learned how to interpret disparate data to predict likely outcomes. Upon her return to civilian life, Amber honed this skill to find money-making opportunities.
Want access to Amber’s winning trades? Click here now to get started.