Upon reading an article the other day, it was noted that an investor who had been with investing for over 35 years and is the editor of the Arora Report. In the last article he had the Aurora charts which you could see some important changes in the stocks. In the article Nigam Arora, investor, engineer and physicist wrote the five most unpopular things to do and here is his conclusions. In his charts he showed 5 stocks, these were Martin Marietta (MLM) Pfizer (PFE) General Mills (GIS) Duke Energy Corp. (DUK) and Nvidia (NVDA) These stocks are compared with the S&P 500 ETF (SPY) in the charts. Some readers may say that the five stocks listed above have good fundamentals and technicals. The unpopular, but prudent, action, however, is to take some profits now that the Dow Jones Industrial Average (DJIA) is close to an expensive 20,000 points.
“If both fundamentals and technicals are good, why take partial profits?” might be the question. The answer lies in an important concept that some investors and analysts tend to ignore at their own peril. The concept can be best described by one word: “over-owned.”In the simplest terms, stocks go up when there are more buyers than sellers. What happens when almost everyone who is going to buy a stock has already bought it? The answer: There is no fuel to propel the stock upward and it appears the stocks are beginning to take a downward drop.
As an example, The Arora Report gave a “sell” signal right at the peak before Apple (AAPL) fell by over $300 pre-split. One key component of our algorithms that made the call was over-ownership. (This call can be easily verified if you have been a subscriber to The Arora Report or by reading MarketWatch.)
Sell popular infrastructure stocks. Infrastructure stocks are going well. On the surface it makes a lot of sense. Trump plans to build a wall on the Mexican border and has been emphasizing improving infrastructure throughout the U.S.It’s important to note that infrastructure stocks were also Hillary Clinton stocks. A favorite Wall Street thesis was to buy infrastructure stocks as it was deemed a winning proposition irrespective of who won the election. As a result, the stocks were overbought going into the election, and now that the election is over, are becoming even more overbought. Furthermore, these stocks are expensive both relative to their own histories and their projected earnings growth rates
Examples of infrastructure stocks are Martin Marietta, Vulcan Materials (VMC) Granite Construction (GVA) Tetra Tech (TTEK) Fluor (FLR) KBR (KBR) United Rentals (URI) Aecom (ACM) Terex (TEX) and Manitowoc (MTW)These stocks should be avoided, but considered for purchase only in the event of a pullback.
Sell popular pharmaceutical stocks Americans pay a lot more for drugs than people in other countries. That’s why you ought to sell large U.S.-based companies. After all, they are at risk of Trump tweets. Examples include, Pfizer, Johnson & Johnson (JNJ) Merck (MRK) Bristol-Myers Squibb (BMY) Abbott (ABT) and Eli Lilly (LLY).
Sell popular utility stocks. Utilities will benefit from deregulation, but higher interest rates will outweigh that. These popular stocks have become very over-owned and expensive. Examples include Duke Energy, Southern Co. (SO) NextEra (NEE) American Electric Power (AEP) PG&E (PCG) and Edison International (EIX).
Trim dividend-paying stocks. Dividend-paying stocks have been very popular and over owned. As a result they have become very expensive. They will be negatively impacted by rising interest rates. Examples include General Mills, Kellogg (K) Philip Morris (PM) Kimberly-Clark (KMB) Sysco (SYY) and Tupperware (TUP)
Trim popular technology stocks. Investors are oblivious that some popular technology stocks get a large portion of their sales from China. If there is a trade war with China, these stocks will get hurt. A rising dollar also is punitive. Examples include Nvidia, Broadcom (AVGO) Intel (INTC) Cisco (CSCO) IBM (IBM) and Oracle (ORCL).
Some of the cash raised from sales described above should be used in less risky stocks and ETFs that are likely to do well. Now that you found out what are the unpopular things to do when DOW nears 20,000 from Nigam Arora do you think you will be able to brave it and invest wisely.