Everyday, it seems, the stock market drops another bomb shell on investors. Yesterday, General Motors (GM) announced a charge of $39 billion. That's far more than most companies are worth. The Dow responded by shedding 360 points.
Earlier, Citigroup (C), the largest financial firm in the world, said that it may write off $11 billion of subprime losses. This is on top of a previous announcement of a $6.5 billion write off. Not surprisingly, their CEO just resigned.
It doesn't end there. Merrill Lynch (MER) reported a write off of $8.4 billion, and their CEO also left (but not before taking a payment of $160 million). These problems are even going international. Last week, Switzerland's Credit Suisse (CS) reported a 31% drop in earnings due to a $1.9 billion write off stemming from mortgage and leverage loan commitments. Dick Parsons, the top dog at Time Warner (TWX), will also be leaving the CEO post. Many shareholders have been demanding his resignation for months
So be careful the next time you go into Kinko's. It might be crowded with laid-off CEOs working on their resumes! Given all of these problems on Wall Street, this week I want to cover a topic most investors never think about--how to protect yourself from stock bombs.
Nearly every stock will, at some point, have a rotten day. Even the best of stocks can plunge 10% or 15% in a single day. That's expected to happen. Some 23-year-old analyst will downgrade XYZ Corp. and suddenly every 24-year-old hedge fund manager will panic and dump their shares. Honestly, nothing I can do will protect you from that. But what I can do is show you some key steps to take to minimize your risks to the worst of the stock bombs.
The first and most important step is to make sure that you're properly diversified. It's amazing how many investors never grasp this fundamental concept. In my Blue Chip Growth service, I recommend that investors be 60% diversified in conservative stocks, 30% in moderately aggressive stocks and 10% in aggressive stocks. It's easy and it's a great way to hold down your risk exposure.
I've been very lucky to have amassed a great long-term track record in Blue Chip Growth. According to the independent newsletter tracker, The Hulbert Financial Digest, the Blue Chip Growth Buy List is on its way towards beating the S&P 500 for the eighth time in the past ten years. All told, we're up over 240% which is nearly three times better than the overall market. And remember, that includes the worst bear market in 70 years.
Some commentators say that our superior results have been "paid for" by taking heavy risk or reckless sector bets. That's absolutely not true. In fact, keeping your risk to a manageable level is one of my highest priorities at Blue Chip Growth. We want investors to eat well and sleep well. That's why, according to Hulbert, our risk-adjusted performance also rates very well.
I'll even admit that, years ago, I recommended Enron in Blue Chip Growth. The numbers looked great and they had a great story. Of course, that later turned out to be untrue, but at the time the stock was racing higher so nobody bothered to ask the tough questions. Where we were different from the crowd, however, is that we started to see unusual volatility in the stock. That's never a good sign. When the risk level got too high, I gave the word to our subscribers to sell Enron and we pocketed a nice 30% gain before the bombs really went off.
This week, I want to cover ten tech stocks that you ought to sell right now. I'm not saying they're like Enron, but they could do damage to your portfolio. The stocks are:
1. Advanced Micro Devices (AMD)
2. Micron Technology (MU)
3. Motorola (MOT)
4. QLogic (QLGC)
5. LSI Corp (LSI)
6. JDS Uniphase (JDSU)
7. Xerox (XRX)
8. Symantec (SYMC)
9. Tellabs (TLAB)
10. Teradyne (TER)
Some of these stocks have deteriorating earnings. Some have lousy margins, and some have poor earnings quality. But all of them rank poorly in my proprietary stock-screening tool, PortfolioGrader Pro.
Don't be afraid to take a loss on a position. Some investors will sit on a loss forever. That's a huge mistake. The best way to make up a loss is by owning a fundamentally superior stock, and not waiting for a bad stock to hopefully turnaround.
Before you make any investment decision, I strongly encourage you to visit PortfolioGrader Pro. The tool is completely free. Just enter in each ticker symbol and it will give you my rating, ranging from "Strong Buy" to "Strong Sell." The database covers over 5,000 stocks and it's updated every week so you're never left in the dark.
Now that I've told you the tech stocks that I don't like, I want to give you three tech names that I do like. My favorite technology stocks in Blue Chip Growth are Google (GOOG), Apple (AAPL) and Research in Motion (RIMM).
I first recommended Google two years ago and the stock has already given us a nice 125% gain. I currently rate it a moderately aggressive buy up to $691. We added Apple nearly three years ago, back when a lot of folks were still skeptical. We're now sitting on a 520% profit. Apple is a moderately aggressive buy up to $183. Finally, Research in Motion has nearly tripled for us since February. The stock is a strong buy for aggressive investors up to $127.
