The stock market will correct itself. While it seems a bit premature to go “all in” buying stocks, we are seeing some signs of the market internals improving a bit. The current strength in stocks is in the Utility sector. This sector is usually strong when things are a bit bumpy in the investment climate. We are seeing some real improvement in Industrial stocks and Information Technology stocks. These two major sectors are very broad in scope. Concentrating stock selection on strong companies with solid balance sheets is very important at this time. Now is not the time to be trying to pick the next Google or Amazon.

Water, Electric, and Gas Utility stocks may lack the pizzaz of Technology names. However, these companies often pay a steady dividend and can provide a stream of income and price stability during turbulent times. Most investors would not want a stock portfolio overly concentrated in Utility stocks. However, by allocating a percenatge of one’s stock portfolio to Utility stocks, turbulent market times can be made a bit less nerve-wracking.

Please call me if you would be interested in having Augusta Capital LLC manage your investment portfolio.

The stop-limit order is similar to the regular stop-loss order but goes one step further. One sets a limit/bottom price with the limit order that will trigger a sale. The stop-limit order is helpful when a stock gaps down at the market open, perhaps on bad news overnight. So there is a limit set at which the trade will trigger.

2022 has gotten off to a very bad start for U.S. stocks. The NASDAQ is down 22% thus far this year. Many large technology stocks have fared much worse. The use of stop orders can protect an investor’s gains and should be used in many investment scenarios to avoid major losses that many stocks have seen this year.

Due to tensions with Russia and rising inflation in the United States, U.S. stocks have gotten off to a very poor start in 2022. Especially hard hit have been stocks in the Technology sector. Cathie Wood’s ARK Invest ETF’s were high fliers and have been walloped. When stocks suffer these dramatic sell-offs, it is tempting to rush in and snap up these “bargain-priced” stocks. Patient investors with a longer-term time horizon can certainly be rewarded. However, investors should not feel rushed to buy these beaten-up stocks.

When a stock price drops dramatically, the price rarely recovers in a parabolic fashion. Usually, the stock will move sideways, building a base. The stock will often stage a rally, only to pull back and languish for a bit. This time seems no different for many of these Technology stocks.

Now is the time to be building a watch list of stocks that could be candidates to purchase once the volatility settles down and the new leaders of the next leg up in the market emerge. In the meantime, Energy stocks and some dividend-paying stocks seem to be a decent place to be at the moment.

Rising rates are bearish for stocks for several reasons. Higher rates make other investments, especially bonds, more attractive. The higher yields and safety of Treasury bonds can be appealing for risk-averse investors. Also, higher rates increase borrowing costs for companies, often crimping balance sheets.

The major stock averages have been largely propelled by large-cap technology stocks. Facebook, Apple, Netflix, Google, and Microsoft have accounted for a huge percentage of the major indices rise over the past 5 years. Many technology companies are especially sensitive to higher rates. Technology stocks tend to have a high price-to-earnings ratio and pay little to no dividend.

When we dig a bit deeper into the effect rising rates actually have on stock prices we see a bit of a more conflicting scenario. It is the rate at which interest rates move up that really affects equity prices. When rates move up swiftly and dramatically this can have a negative impact on equity prices. However, when rates move up in a more measured fashion, stock prices can move in sync with rising rates.

Warren Buffett’s Berkshire Hathaway is known to most investors in the United States. This multinational conglomerate has been an outstanding investment over the long term. Berkshire’s holdings include many large-cap, blue-chip companies. AAPL, KO, AXP, and BAC are four of the largest companies in the Berkshire portfolio. Some other smaller Berkshire holdings include familiar names such as; Dairy Queen, Clayton Homes, Duracell, NetJets, Benjamin Moore, and Fruit of the Loom. In its simplest form, Berkshire looks for companies that they can understand and then buys these companies at prices that they are comfortable with. Many companies in the portfolio are owned 100% by Berkshire. The stock of Berkshire “B” shares has increased from $300 per share to $319 thus far in 2022.

A recent Barron’s article discussed a similar, albeit, much smaller conglomerate called Graham Holdings, ticker( GHC). Like Berkshire, GHC has a solid balance sheet. GHC was known as the Washington Post Company until the newspaper was sold to Jeff Bezos in 2013. Some of the portfolio’s more prominent holdings include local TV stations, the Kaplan Education business, manufacturing and health care operations, auto dealerships, and restaurants in the Washington D.C. area.

Graham Holdings is not followed by many analysts on Wall Street. The company does not talk much. Several analysts that follow the company feel these shares are very undervalued. The family controls the company through a nonpublic, supervoting stock, making a takeover unlikely. Recent purchases include a consumer internet company and a Virginia-based Ford Dealership. Graham’s CEO, Tim O’Shaughnessy, has also been buying back the company stock. O’Shaughnessy feels that there is a “substantial delta between our share price and our intrinsic value.” With stock prices at all-time highs, well-run, undervalued conglomerates might make sense in many investors’ portfolios in 2022.

Despite a worldwide pandemic, 2020 and 2021 saw double-digit returns for the major stock market indices. These indices were largely propelled by a handful of large companies. Facebook, Apple, Amazon, Netflix, Google, and Microsoft contributed much to the upward movement of the major indices. The Federal Reserve has been very accommodating in propping up the economy thus helping the United States get through these hard times. The Fed has indicated that they will begin to back off their policies of aiding our economy. Other interesting developments include rising inflation and interest rates. Also, the current administration, may not be as pro-business as in the past. They seem to be focusing on more social issues that they feel need attention.

At the moment, stocks in the Utility, Financial , Basic Materials and Consumer Non Cyclical sectors are showing the most upside momentum. These industry groups often fare well in a rising rate environment. Health Care and Telecom stocks are lagging. Another very compelling sub-sector is the Semi-Conductor group. Semi Conductor chips are present in many tpes of equipment world wide. Most all types of electronics use some type of chip these days. The chip shortage has had a major impact on the automobile industry. There are several well known chip companies such as Intel, AMD, and Taiwan Semiconductor. In addition, there are many smaller chip related companies that manufacture parts for these larger companies. Many produce their own smaller, highly specialized chips.

Many investors like the idea of holding names like Apple, Netflix, etc in their portfolios. Sometimes it can pay off in a big way to dig a bit deeper and explore some smaller, high quality companies that are not on everyone’s radar.

1. U.S. stocks tend to trend up 75% of the time. The other 25% of the time, stocks trend sideways or downward.
2. The theory “A rising tide lifts all boats” is largely true with the stock market as well. However, certain stocks and industry groups do preform better (or worse) than others for sure.

Using history as our guide, it usually is a good time to be invested in the stock market. The timing of one’s buy can be very important in an individual’s overall return from stocks. While the “Rising Tide” theory is true, certain industry groups perform better at certain times. Large- Cap Technology stocks have done great over the past several years. However, some signs are emerging that the next great leaders of the market might not be these Large Cap household names, but rather Smaller Cap Technology stocks that are not recognizable names. Other industries that are expected to perform well are some of the Travel and Tourism stocks and niche Financial Companies. This is, of course, is dependent on the Covid numbers to continue to trend downward.

I have relied on research houses; Ned Davis Research and Lowry Research for over 25 years to determine the trend of the broad market and then what industry groups to focus on at that specific time.

What specific individual stocks one owns is important. However, the percentage an individual is exposed to any individual asset class is the most important factor in an individual’s overall return and success in investing. The “sweet spot” for a risk/return ratio is about 65-70% in stocks with the remainder in more stable asset classes such as bonds and cash instruments.

Many major Chinese companies have huge amounts of debt, which is a concern. However, my biggest reservation with China is the ongoing government regulation and control of Chinese companies. Two major Chinese companies, Alibaba and Tencent Holdings have faced scrutiny and regulatory pressures recently. China’s President Xi Jinping is another major wild card in the mix regarding investing in China. His role in regulating Chinese companies shows no signs of slowing down. In addition, he is seeking to remain in power after his term is completed. This goes against the party’s system of leadership succession. It just seems a lot could go wrong in China.

One could certainly make a Bullish case for investing in Chinese companies. The growth there seems unstoppable. An 8% +/- GDP growth rate is certainly impressive, although there are some signs that growth is starting to ease up a bit. Nonetheless, I feel that there are ample investment opportunities in US companies, as well as, other, more stable areas of the world.

I don’t feel the need to “Swing At Every Pitch”.

The major stock indexes are capital-weighted indices. This means that the larger companies in these indices move the indices the most. To determine the true health and sustainability of a bull market, one must dig a bit deeper. Small and Mid Cap stocks are not keeping pace with the major indexes. This is not a healthy attribute of a strong bull market. Fewer and fewer stocks are participating in this bull market. Historically, the last stocks to hold up during the final stages of a bull marker run are the large-cap stocks, precisely what is occuring at present.

With proposed capital gain tax hikes looming, a bull market that is long overdue for a correction, now may be the time to take some profits and have some cash ready for a good buying oppurtunity at a later date.

This index measures investor sentiment and can indicate when investors are too Bullish or Bearish. I like to use this index as a “quick look” contrarian indicator. So, when the indicator is pointing to extreme greed in the market it could mean that stocks are due for a correction. Of course the same is true on the other side of the indicator. The index shows values between 1 and 100. 100 is the most extreme side of greed. Currently, the seven, equally-weighted, components of the index are mixed and the index is showing a reading of 39, indicating fear in the market. The link to the index is found at https://money.cnn.com/data/fear-and-greed/

As I mentioned, this index can be used as a contrarian indicator. When the indicator is showing an extreme reading in either direction, it may be beneficial to make an investment move in the opposite direction. At Augusta Capital, we have a long-term investment horizon. I use this indicator as one tool in timing a market buy or sell.