Let's get the bad news out of the way. Telecom firm
Nokia (
NOK
)
has stumbled on several fronts, triggering a stop-loss in my
$100,000 Real-Money Portfolio
, so I'll be selling my 800 share position 48 hours after you read
this. More bad news: the recentmarket pullback has affected my
$100,000 Real-Money Portfolio
, so I'm now roughly break-even while the broadermarket is modestly
in the black.
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I remain hopeful that readers understand I'm building a portfolio
for the long haul. As I (mostly) seek out stocks with strong
downside protection, I run the risk of missing short-term
market
spikes when investors embrace risk.
Now for the good news: my current roster of holdings appear fairly
solid in terms of risk, and in every instance, I see ample
potential reward -- for patient investors.
Nokia's rotten timing
Nokia has been under an intense spotlight in recent months as it
aims to make a dent in the
Apple (Nasdaq: AAPL)/Google (Nasdaq: GOOG)
smartphoneduopoly . Reviews of the company's Lumia line of
smartphones have ranged from good to very good, and all signs have
been pointing to potential success. So the discovery of a software
glitch in those phones, which has led the company tooffer
face-saving $100 user credits, is surely unfortunate.
Make no mistake: I still think Lumia has a real shot at success,
especially in markets such as China. But the company now has even
more to prove to investors, and I have no desire to fight broader
sentiment. If there is a silver lining to the bad news, then it is
that Nokia (even before Wednesday's sell-off) was the smallest
holding in my real-money portfolio. The funds that will be freed up
from the sale will give me additional firepower to pounce on
bargains that emerge during the first-quarterearnings season .
Lastly, I will no longer be adhering to stop-loss limits that I
have recently spelled out in my picks. I'm adhering to the policy
with Nokia, but don't want to have my hands tied in such a fashion
in the future in the event that other portfolio holdings hit a
rough patch.
Alcoa's good news
Despite a tough environment for aluminum pricing,
Alcoa (
AA
)
still managed to handily exceed consensusprofit forecasts.
Management has done such an outstanding job of restructuring the
business in recent years that the company can still squeeze out
profits during a very challenging economic environment.Shares are
staging a nice relief rally on Wednesday (April 11), up more than
7%, though some of that gain is due to covering by short sellers.
To be sure, it's hard to get overly excited about Alcoa's results
when aluminum flirts with $0.90 per pound on thespot market . I
still think industry supply cuts will help stabilize and eventually
boost pricing back toward the $1.10 per pound mark. At that level,
Alcoa'searnings power would exceed $1 a share, perhaps in 2013. And
at that point, analysts would begin speaking ofearnings power
approaching $2 a share by mid-decade. That's why I think this stock
will move into the mid-teens or higher in 2013 as that view starts
to crystallize. But there's no reason for me to add to this
position right now, at least until I see aluminum prices start to
strengthen and move toward the $1 per pound mark.
Abearish bet stays in place
I remain cautious as we head intoearnings season . The recent
market weakness may be telling us of tougher times ahead, so I'm
sticking tight with my position in the
Direxion Daily Small CapBear 3X ETF (
TZA
)
. This fund shot up 21% in just five trading sessions before a 3%
pullback on Wednesday, and I need to keep it in place until I see a
more positive tone to economic reports. Signs have emerged of an
incipient slowdown in the U.S.economy . Small business owners, for
example, have just grown more cautious, as
I noted yesterday
.
Risks to Consider:
Please recall that our policy dictates that we refrain from
making any moves until 48 hours have passed, giving you time to
trade ahead of us. That's crucial to remember, as it may be wise to
sell thisbearish ETF if the market falls very sharply on any given
day. Those kinds of sell-offs often represent "capitulation ,"
whereby negativemarket sentiment snowballs until all excesses are
washed out. A quick market rebound is often the next move, so you'd
want to be out of this ETF before that happens.
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Action to Take -->
As I stated earlier, I'm selling my stake in Nokia 48 hours after
this is published.
This is an awfully tricky market. I encourage you to continue to
focus on stocks that have considerable downside protection if the
recent market pullback resumes. Yet such an environment also brings
fresh opportunity, which is why it's crucial to have spare cash on
hand to put to work quickly.
Lastly, keep an eye out for upcomingearnings releases for several
of my portfolio holdings. These include
Citigroup (
C
)
(Monday, April 16),
Cree Inc. (Nasdaq: CREE)
(Tuesday, April 17), with
Hasbro (
HAS
)
and
Ford (F)
set to weigh in roughly a week later. By then we should have a much
clearer read on the tenor of
earnings season
, including any adjustments that might need to be made.
[Note:
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-- David Sterman
David Sterman does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC owns
shares of AA, NOK, GOOG, TZA, CREE, C, HAS, F in one or more if its
"real money" portfolios.