See Jim's new portfolio to help navigate the treacherous interest-rate environment.
Jubak's Journal Recent articles: • 10 stocks that win with $60 oil, 3/7/2006 • Oil producers reach for more power, 3/3/2006 • 3 ways to invest in Europe's revival, 2/28/2006 More... | Jubak's Journal 10 under-the-radar blue chips The market seems to be going nowhere, so it's a good time to keep emotions out of your stock picking. It's also time to revisit my battle-tested Stealth Blue Chip screen. By Jim Jubak What a frustrating stock market! And what a dangerous market for investors. Which is why this is a good time for listening to stock screens rather than your hopes and fears about stocks and stock sectors. Stocks in general are going nowhere. The week of Feb. 20-24, the Standard & Poor 500 And the sectors that were working -- last year or last month -- aren't working now, either. Energy stocks and gold stocks, two of the big winners of 2005 and of January 2006, are both in the dog house. For example, the Oil Service Holdrs
This kind of market is dangerous to investors because, in frustration, many of us will try to force the market to go where we think it should go. We'll double up on positions, increase our bets on favorite sectors, push all our cash into "bargains" as if our faith, backed by our buys, could make stocks go up. If we believed in energy stocks in January, and now own a sizeable position in this sector, it's tough to resist the lure to buy more now. After all, we argue logically, these stocks are 15% cheaper than they were. And if I buy more now, when they go up I'll be an even bigger winner. And I'll get back all the money I've lost in the last six weeks even more quickly. Dipping or gambling? I've got nothing against buying on the dip or using a drop like this to start positions in stocks you've wanted to own but couldn't bear to buy when they were 15% more expensive. I've done it myself in this seasonally weak period for energy stocks, using it to start building a position in EOG Resources But I'm also trying very hard to plug my ears to the siren lure of these fallen sectors. It's hard, on days when all the stocks in a sector such as energy or gold are down, to remember that these two sectors aren't the only source of potential future profits. I don't want to let the action in these sectors to blind me to the rest of the market so that I wind up rooting desperately for a recovery of a portfolio filled with nothing but gold and energy stocks bought on the dip. More from MSN Money
Bargain hunting, even at a time like this, has to work within a framework of reasonable asset allocation. Over-weighting a portfolio toward a sector or two is investing. Betting everything in your portfolio on a single sector or two is gambling. The best way to avoid letting a bit of dip-buying turn into gambling is to run screens that have produced profits in the past. Investing screens don't get emotional about losses or gains. They don't lose perspective when the stock market turns choppy. And they keep scanning the entire market looking for good investments instead of getting hung up on a sector or two. So, I recently ran one of my long-time favorite screens, one I call "Stealth Blue Chips," in an effort to secure this objectivity -- and to secure some future profits. This is one of my favorite screens, for three reasons. First, I like the investment philosophy behind it: The idea is to find stocks that fit the classic definition of blue chips -- steady earnings growth, better-than-average performance in rising markets and rock-steady performance in down markets -- but that most investors have never heard of. Second, I like the results this screen produces. It's not that it never coughs up a losing stock -- 2 of the 15 picks that I've published from this screen since I first started running it in 2003 have lost money. But the average return for the 15 Stealth Blue Chips has been a tidy 35.7%. Here's a complete list of the 15 picks that I've made from this screen in past columns, starting in 2003.
And, three, I think it's especially well suited to the current choppy market. Although the stock market isn't going anywhere, the acquisition market remains red hot. And the highly profitable mid-cap and smaller companies on this list are exactly the kind of companies that bigger "blue chips" are snapping up in their search for growth. For example, Lifeline Systems How does this screen work? (My apologies, but we don't have all the data you need to run this screen on MSN Money so you won't be able to duplicate my list at home.) To make the first cut: After that, I did stock-by-stock due diligence on the 28 stocks that passed this screen. In my due diligence, I looked for the stocks of companies with the potential to sustain out-performance for the next five years. If the record of the past five years was built on conditions, such as rapidly falling interest rates, that seemed unlikely to be repeated over the next five years, I took the stock out of the running. That produced a final list of ten stocks for this year's Stealth Blue Chips portfolio. So what stocks did the screen turn up this time? On my regular Wednesday morning appearance on CNBC's Morning Call, I recommended these three of that 10: Penn National Gaming And here, exclusively, for readers of CNBC.Com on MSN Money is the complete list of 10: Central European Distribution Five of these -- Chico's, Expeditor's, Headwaters, Penn National and SCP Pool -- are holdovers from the last list. Five -- Central European Distribution, Cognizant Technology Solutions, DaVita, Oshkosh Truck, and Simpson Manufacturing -- are new to my Stealth Blue Chips portfolio. As with all screens, please remember that this list of potential stocks is just the beginning of your research. Screens only examine the parameters they're asked to examine and they cannot pick out changes in future direction from data on past performance. Editor's Note: A new Jubaks Journal is posted every Tuesday, Wednesday and Friday. Please note that Jubak's Picks recommendations are for a 12-to-18 month time horizon. See Jubak's CNBC Picks for shorter six month recommendations. For suggestions to help navigate the treacherous interest-rate environment see Jim's new portfolio Dividend stocks for income investors. For picks with a truly long-term perspective see Jubak's 50 best stocks in the world or Future Fantastic 50 Portfolio. E-mail Jim Jubak at jjmail@microsoft.com. At the time of publication, Jim Jubak owned or controlled shares in the following equities mentioned in this column: Cognizant Technology Solutions. He doesn't own short positions in any stock mentioned in this column. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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