Stock Market Video
The Best Stock Story in the World
Let the Mind Go Where It Will
In Case You Missed It
In this week's Stock Market Video, I see a strong market, but
not a perfect one. There are lots of stocks doing well and the big
indexes are all rallying, so it's time to get some money off the
sidelines. Several factors, including the fact that it's August and
some big macroeconomic uncertainties need resolution, indicate that
it's not a time to jump into the deep end, but you should certainly
be getting your feet wet. Stocks discussed include:
3D Systems (
), AO Smith (
), Weyerhaeuser (
), SolarWinds (
), Under Armour (
Regeneron Pharmaceuticals (REGN)
. Click below to watch the video!
The Best Stock Story in the World
When the big oil spill in the Gulf of Mexico was fouling the waters
and shores, there was some talk of oil-eating microbes that were
experiencing a growth spurt from the additional food supply. And
there was some hope that microscopic petroleum connoisseurs like
Alcanivorax (one of my favorite oil eaters, and I hope one of
yours) might actually help to mitigate the environmental damage.
As it turned out, the sheer bulk of the BP/Amoco spill overwhelmed
the appetite of these willing bacteria, but the principle that a
concentration of almost any resource will trigger a response from
nature is a sound one. If it's edible, something will appear to eat
One resource (?) that we have right now is a superabundance of
toxic debt, which is a blanket term for the mortgage-backed
securities (MBS) that inundated the financial world during the
Housing Bubble. MBSs are bonds based on the revenue stream from a
packet of mortgages, a foundation that the market found reassuring
in 2007 because, after all, it was based on the value of housing,
which was going to go up forever. Right?
Many people (me among them) see the massive amounts of rotten MBSs
festering in the basement as the real reason the economic recovery
is taking so long to develop. Taken collectively, banks and other
financial institutions have so much toxic debt on their books that
they're as risk-averse as fixed-income retirees. They have taken
the money doled out by the government and put it into Treasuries
rather than get back into mortgage lending.
But, as nature has taught us, there is something out there that
will eat anything, and for toxic debt, that something is
Ocwen Financial (OCN).
Ocwen used to be a conventional mortgage lender, back when that was
still profitable. But these days the company has moved into the
mortgage servicing business. That is, it takes over the billing of
mortgage payments, the counseling of underwater homeowners and
refinancing negotiations where possible, and foreclosures where
While Ocwen isn't buying MBS directly, the company's independent
analysis of the actual value of the underlying mortgages allows the
value of the bonds to be correctly adjusted to the reality of the
market. Assigning values to junk mortgages is a job the banks
haven't wanted, but they're willing to hand the work off to a
reliable third party, and Ocwen is very good at it.
Analysts expect that about $4 trillion (with a "t") of mortgages
will be farmed out to servicing companies in the next few years,
and Ocwen Financial is expected to get a nice chunk of that
It's a great story, easy to understand and with enormous upside
potential. But, of course, that's also what makes me think twice
OCN began a steady climb in late 2010, climbing from below 9 to
almost 17 in March 2012. A quick, seven-week correction to about
14.5 then gave way in May to a high-volume rally that kicked the
stock to 20 in just 10 weeks. And then it really began to soar.
From the end of July until now, OCN has roared to 25 before cooling
off a little this week.
My point isn't just to torment you with the chart of yet another
big winner that you've missed out on. You can get enough of that
from any number of places.
No, my first point is that the power of a good story is so
compelling that you have to work hard to protect yourself from it.
I've know people who could tell the story of a stock at a cocktail
party and have four or five listeners ready to put their life
savings into it.
It happens that Ocwen Financial is a solid firm with good long-term
earnings (and appearances in
Cabot Top Ten Trader
dating back to 2006 when it was just a mortgage lender) with a
But story stocks sometimes have nothing but that story going for
them, and that's not good.
The second point is that by the time you finally hear the story,
it's often too late.
My brother on the West Coast has called me a few times after he's
listened to a news story about a big event (the earthquake in China
a few years back was one), wondering if there is a way to play the
All I can say, usually, is that if there is a way to invest
profitably, chances are that the big investors have already done
Finally, I would just point out that the best way I know of to find
story stocks long before they become widely known is to have a
single-minded researcher like Tom Garrity, editor of Cabot Small
Cap Confidential, doing the data mining, analysis and writing.
Tom's obsessive research routinely finds tiny stocks with monster
potential long before the market does. If you have the patience to
wait for one of Tom's compelling stories to assert itself, the
results can be stunning.
Here's this week's Contrary Opinion Button. Remember, you can
always view all of the buttons by
Let the Mind Go Where It Will
This doesn't mean you should daydream. It means you should follow
your thoughts and ideas to their logical conclusions, especially
when they lead to roads less traveled. The best investments are
often the ones that Wall Street has not yet discovered. Original
thinking is difficult, and that's precisely why it can be very
In case you didn't get a chance to read all the issues of Cabot
Wealth Advisory this week and want to catch up on any investing and
stock tips you might have missed, there are links below to each
Cabot Wealth Advisory 8/21/12 - Imperfect
In this issue, Lou Gagliardi, editor of
Cabot Global Energy Investor
, tells the inspiring story of one-handed pitcher Jim Abbott and
looks at the dangers and opportunities inherent in imperfect
markets and gives the rules for survival. Stock discussed:
BreitBurn Energy Partners (BBEP).
Cabot Wealth Advisory 8/23/12 - Profiting from
Cabot Benjamin Graham Value Letter
editor Roy Ward recommends knowing what stage of the economic cycle
we're in and using that as a guide to picking stocks. Technology
and Consumer Discretionary stocks are poised do well. Stock
Dollar General (DG).
Have a great weekend,
Cabot Wealth Advisory