Welcome to Episode #150 of the Zacks Market Edge Podcast.
Every week, host and Zacks stock strategist, Tracey Ryniec, will be joined by guests to discuss the hottest investing topics in stocks, bonds and ETFs and how it impacts your life.
In this episode, Tracey is going solo to discuss a topic that has taken on some importance in 2018 as some popular stocks have taken a dive.
When should buy and hold investors sell? If ever?
While learning when to sell is important for all investors and traders, buy and hold investors who tend to hold for years, or sometimes, decades, face further challenges.
The biggest myth in buy and hold investing is that you should never sell. But industries and management teams change. New technologies emerge. Investors can’t just buy a stock and put it on autopilot.
There are three scenarios that buy and hold investors should watch out for with their companies. How they respond can vary depending on which scenario it is.
Scenario #1: The Business is Struggling Due to Competitive Pressures
It’s “innovate or die” in 2018 but some industries are under more pressure than others. Amazon’s ascent to the peak of American retail has put strains on the entire retail industry.
1. Bed Bath & Beyond (BBBY - Free Report) shares have fallen 81% over the last 5 years. There are many investors who have been caught holding the bag and are waiting to “get back” to whatever price they paid before selling. But with margins still on the decline and negative same-store-sales, is a turnaround in the offing?
2. L Brands (LB - Free Report) has fallen 51% in 2018 on worries about the flagship brand, Victoria’s Secret, and competition from Aerie, among others. Also, PINK, once one of the hottest apparel brands with tweens and teens, has cooled. Can it get its coolness back?
3. Fossil (FOSL - Free Report) was left for dead by Wall Street earlier this year as shares sunk to 5-year lows on fears that the watch was really dead and the iWatch would rule the world. But shares have rebounded 140% in 2018 as some investors, apparently, believe there is light at the end of the tunnel. Millennials are even still wearing traditional watches. For long term investors, is it worth hanging around to see what happens next?
Scenario #2: The One Event Sell Off
Then there are the companies that have one event happen which spooks investors who sell the stock.
1. Chipotle (CMG - Free Report) is a good example of a “one event” type of a stock. It had a food and PR scare that really hit the shares hard. Over the last 5 years, the shares are down 24.2%, although they have rebounded 53% this year. From a high around 740 in 2015, they sank as low as 247 in 2018 before the rebound. Should investors hold on in a one event type of a stock plunge?
Scenario #3: What About the Cyclical Stocks?
Rounding out the three scenarios are the cyclical stocks such as some of the transports, the semiconductors and, as we’ve all seen over the last 5 years, the energy stocks.
With energy, it wasn’t the business that was struggling due to competition or a change in technology, it was a plunge in the price of the commodity.
1. Chevron (CVX - Free Report) is a good example of how the cyclical stocks can test the buy and hold investor. Oil prices peaked in 2014 around $110 and plunged to $35 in February 2016. It has since risen as high as $75 but the oil stocks haven’t recovered quite as quickly. In 2018, shares of Chevron are up just 0.6%. Over the 5-year period, they’re up only 6% compared to the S&P 500 which is up 65% over that same time.
Should you dollar cost average into the cyclicals during the down cycles?
Find out the answer to this and more in this week’s very important podcast.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
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