In times of market volatility, it can be difficult to know when to buy and sell. Ever since stocks entered a bear market, I’ve understandably received plenty of questions from investors on this very topic.
My answer? It depends on the stock and the market conditions.
The reality is the March correction left no stock untouched. Some analysts recommended investors buy the dip, while others recommended investors run for cover. As you may recall, I told investors to stand pat. I don’t believe in selling into a panic, and I wasn’t ready to put any new cash to work just yet, either. I needed to see the stock market mechanics improve first.
We saw that first with dividend stocks in early March. Given the ultralow Treasury yields, the Dow and S&P 500 yielded significantly more (and they still do). So, it was only a matter of time before yield-hungry investors would go bargain hunting. As such, I gave the “all-clear signal” to start buying dividend stocks, but I wasn’t quite ready to give the thumbs up on growth stocks, too. I needed to see where the analyst community stood.
As I mentioned in yesterday’s Market360, now that the first-quarter earnings season is underway, it’s clear that Wall Street is reacting as it should: rejecting weak results and rewarding the strong ones. This was the “all-clear signal” I needed before recommending investors buy growth stocks again.
So, I called this Wednesday as the time to buy, as the stock market would surely pull back as it digested the weak March retail sales report. This would give growth investors the perfect window to go bargain hunting and get into position before the fundamentally superior companies’ stocks were drop kicked and driven higher by strong earnings results.
All that being said, we’re not out of the woods just yet. The volatility is unlikely to fully die out until the coronavirus is beat and countries impacted are able to reopen their economies and get folks back to work.
Why I Sold HEICO Corporation
Generally speaking, I don’t like volatile stocks and I will not hesitate to sell them, which sometimes means selling companies where the fundamentals had been fine. Take HEICO Corporation (HEI), for example.
The company sells replacement parts to the airline industry, as well as to the U.S. government. The company holds more than 10,000 approvals from the Federal Aviation Administration (FAA), and has an exemplary safety record.
I recommended HEI in Growth Investor way back in June 2018. In the nearly two years that HEI sat on my Growth Investor Buy List, the company has continued to post stunning earnings and sales results. In fact, it has posted eight-straight quarterly earnings surprises.
And yet, the stock was downgraded to a C-rating. This wasn’t too surprising, as the company’s business was negatively impacted due to the coronavirus’ impact on the airline industry. Just this week, company management announced that it has been forced to layoff employees, reduce hours and cut pay. In fact, it slashed executives’ salaries by 20%.
HEI also noted that “we do experience, and expect to continue experiencing, periodic operational disruptions resulting from supply chain disturbances, staffing challenges, temporary facility closures, transportation interruptions and conditions which slow production or increase costs.” That’s not good.
Analysts had also lowered first-quarter earnings forecasts by 22.6% in the past two months alone. Lowered analyst estimates typically precede earnings misses. And since we’re slowly turning back to a stock market environment where fundamentals reign supreme, it’s likely HEI will get hit hard if it misses.
As the company continues to struggle, I only expect that volatility to increase and weigh on the stock further. So, I decided not to wait for earnings, only to suffer the worst of a panic sell-off. Instead, we sold HEI out of Growth Investor a week ago, April 10, to lock in our 29% gain. (That was even before the dire note from HEICO management that I just shared.)
As an investor, I want to be in the stable growth stocks. These offer powerful growth with little risk. With that in mind, there’s one company in particular in Growth Investor that fits this bill to a “T.” It’s a growth stock in the artificial intelligence (A.I.) space and it offers a dividend, so it offers a rare one-two punch of high growth and income. It’s also up about 23% year-to-date while the S&P 500 is down 12%.
It is the company that makes the “brain” that all A.I. software needs to function, spot patterns and interpret data.
I’ll tell you everything you need to know, as well as my latest buy recommendation, in my special report for Growth Investor, The A.I. Master Key. The stock is currently sitting pretty with about a 73% return on my Growth Investor Buy List. It’s hanging right around my buy limit price, so you’ll want to sign up now; that way, you can get in while you can still do so cheaply.