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Can You Really Time the Stock Market?

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  • (0:25) - How Important Is Timing In The Stock Market?
  • (4:00) - Does The DOW Theory Work?
  • (14:20) - Tracey’s Top Stock Picks
  • (21:10) - Episode Roundup: WFC, ANDE, KBH, BG, DKS

Welcome to Episode #174 of the Value Investor Podcast

Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.

With stocks still hitting new all-time highs, and Tesla and Apple off to the races, it’s time for value investors to tap the value investing manual for investing advice.

That manual is Benjamin Graham’s The Intelligent Investor which was first published in 1949 and updated by Jason Zweig for a new generation of investors, after Graham’s death, in 2006.

Benjamin Graham is long considered to be the father of value investing and was once the boss, and mentor, of Warren Buffett.

How can value investors be “intelligent” investors with the stock market raging higher?

Two Types of Investors

Graham lays out the scenario in which there are two types of investing.

1.       Timing: which is when you anticipate the action of the stock market. He warns that this is when an investor can become a speculator.

2.       Pricing: which is when you attempt to buy stocks when they are quoted below their fair value.

Do you think you can time the top of a bull market?

Can the Dow Theory Strategy Help You Market Time?

Graham investigates one of the older stock timing strategies, The Dow Theory.

This strategy is over 100 years old. It sends out a buy signal when the Dow Transportation Index and the Dow Industrial Index both hit new highs. The thinking goes, that something good must be going on in the US economy if both of those indexes are breaking out at the same time.

It sends out a sell signal when they both break down at the same time as well.

It got its credentials during the Great Depression because, according to Graham, it correctly sent a sell signal a month before the market crash in 1929 and then correctly sent a market buy signal in 1933, after the Dow had finished selling off.

But how was its later track record?

The Dow Theory doesn’t do so well during secular bull markets like those of the 1950s and 1960s because stocks keep rising during those markets.

So even if you sell, on a sell signal, and buy back in later, you were almost always getting in at a higher price.

Just Buy Cheap Stocks

If you can’t market time, Graham suggests using the “pricing” method to buy stocks. If you’re buying a stock below fair value, and a market sell off or crash happens, you’re already ahead of the game.

Here are 5 stocks being overlooked by the market right now.

5 Value Stocks in a Hot Stock Market

1.       Wells Fargo (WFC - Free Report) is down 10% year-to-date as its earnings report didn’t change the story that the bank is struggling. But is it a buying opportunity? It’s forward P/E is just 11.8 and it pays a dividend, currently yielding 4.2%. It’s a Zacks Rank #3 (Hold) stock.

2.       The Andersons (ANDE - Free Report) is a hidden small-cap agriculture play that is off its 2019 lows, thanks to the Phase 1 China agreement, but is still cheap with a forward P/E of 13.1. It’s a Zacks Rank #1 (Strong Buy) and also pays a dividend, currently yielding 2.9%.

3.       KB Home (KBH - Free Report) had another strong earnings report recently and the shares have been rallying, gaining 10.9% year-to-date. But this Zacks Rank #1 (Strong Buy) is still really cheap, with a forward P/E of 10.5.

4.       Bunge (BG - Free Report) is another agriculture company that is being ignored by Wall Street. Shares have fallen 31% over the last 2 years. While it’s not quite as cheap as some of the others, it’s still attractively priced with a forward P/E of 16.2.

5.       Dick’s Sporting Goods (DKS - Free Report) is back on the radar as shares of this specialty retailer surged 41% over the last year. It’s still cheap, though, with a forward P/E of just 13.3. This Zacks Rank #1 (Strong Buy) also pays a dividend, currently yielding 2.3%.

What else should you know about trying to time the stock market?

Listen to this week’s podcast to find out.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>

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