The Cold Investor Buys Out of Favor
The Hot Investor Buys Trends
The Orthodontics Revolution
The Hot Investor buys trends. He likes what's working now.
He's impatient. Some observers might even say his money burns a
hole in his pocket.
The Cold Investor, on the other hand, buys what's out of favor
and waits patiently. He knows that values will win out
eventually. Some observers might even call him stubborn.
Well, today I'm giving you two choices, and they come with a
paradox, which will become apparent as you read.
In this corner is Tom Garrity, editor of
Cabot Small-Cap Confidential
, who is traditionally a Cold Investor.
Tom recommends one stock per month to his subscribers, but only
after he's researched it thoroughly. Traditionally, Tom's picks
take some time to work out, but the long-term profits are very
rewarding. For example, last week Tom recommended selling
Questcor Pharmaceuticals (
He'd recommended Questcor back in July 2010 when it was trading
at 9.38. Last week, he recommended that subscribers sell at 40,
for a profit of 326%, not bad for two years. A typical move for
But last week also brought something atypical. Apple announced it
, a company that specializes in security technology (like
fingerprint readers) for roughly $350 million, and the stock went
crazy as a result, soaring from $5 a share to more than $8!
Tom had recommended AuthenTec just three weeks before down at
$4.50, which meant his readers were looking at a profit of 87%.
After just three weeks!
And that's not all!
Tom's June recommendation (in a consumer products industry) is up
50% since he recommended it.
And Tom's May recommendation (in the same consumer products
industry) is up 60%!
In short, Tom is a Cold Investor who's suddenly become hot!
On the other hand ….
In this corner, we have Paul Goodwin, editor of
Cabot China & Emerging Markets Report.
Paul recommends roughly two stocks a month. His system isn't
fundamentally based like Tom's because Paul is a Hot Investor. He
trusts charts. He likes to own what's going up, and if it's not
going up, he won't own it.
This approach, based on the momentum strategy at the core of
Cabot Market Letter,
has served Paul well for years. In fact, he was the top
performer, according to Hulbert, for every five-year period
ending from 2008 through 2010, a feat due above all to the
strength of Chinese stocks.
In 2006, his portfolio was up 78.6%.
In 2007, it was up 74.1%.
And in 2009, it was up 33.9%.
Well, Chinese stocks, as you may have noticed, have cooled.
In recent months-alright, years-Paul has been a Hot Investor
whose universe has grown cold.
He's working as hard as ever, but those Chinese stocks just
haven't been cooperating, even though the Chinese economy is
still growing fast. To my mind, it's only a matter of time before
they reward Hot Investors again.
So here's your choice.
Do you go with the Cold Investor who's got a hot hand today and
hope it continues?
Or do you go with the Hot Investor whose hand has grown cold,
knowing that when Chinese stocks finally get going again, they're
likely to make up lost ground fast?
Moving on, there's an old phrase used to express the state of
the market when all the news is rosy, all the investors are
bullish, and hundreds of stocks are hitting new highs. It's
"Priced to Perfection" and it's code for, "Time to Think About
Well, I don't know a similar phrase to describe the opposite
condition, so I'm suggesting one today: "Priced to Perdition." It
means all the news is terrible, all the investors are bearish,
and very few stocks are hitting new highs.
We're not exactly there today, but we were definitely there back
in late 2008 (2009 was great fun), and I think we were there
again in May and June of this year, when Europe was on the brink
Since then, stocks have strengthened-though they've thrown in
enough sharp drops along the way to keep investors fearful-and as
a result, I'm pretty bullish about the months ahead.
And I'm most bullish, as always, about companies that are growing
sales and earnings rapidly, that have revolutionary new
technologies and services, and whose charts tell me they're
becoming increasingly well regarded by growing numbers of
One company that fills the bill today is
Align Technology (
, a California company that's revolutionized the orthodontics
The core of Align's business is a computer system that enables
the creation of customized clear plastic 3-D "aligners" that do
the same job as ugly metal braces. These aligners are removable
by the user, to enable brushing, flossing and eating
corn-on-the-cob. They're effective; the average user goes through
a set of 24 over the course of a year that progressively shifts
his teeth into the proper position. And of course, they're
patented, which means that everyone who wants to avoid the
problems of metal braces has to pay Align Technologies.
The company is well managed; it's grown revenues every year of
the past decade, and it's grown earnings every year since 2008.
In the most recent quarter, revenues grew 21% to $146 million,
earnings soared 70% to $0.34 per share. And the after-tax profit
margin was a robust 19.6%.
I like the whole idea, and if you like it too, I recommend you
take a no-risk trial subscription to
Cabot Top Ten Trader
, which recently recommended the stock and which will keep you up
to date with ongoing advice about it.
Yours in pursuit of wisdom and wealth,
Cabot Wealth Advisory