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Nasdaq 100 Watch List: June 7, 2013
Below are the Nasdaq 100 companies that are within 11% of their respective 52-week lows. Stocks that appear on our watch lists are not recommendations to buy. Instead, they are the starting point for doing your research and determining the best company to buy. Ideally, a stock that is purchased from this list is done after a considerable decline in the price and rigorous due diligence. Continue reading
Dividend Watch List: June 7, 2013
Below are the 11 companies on our U.S. Dividend Watch List that are within 11% of their respective 52-week lows. Stocks that appear on our watch lists are not recommendations to buy. Instead, they are the starting point for doing your research and determining the best company to buy. Ideally, a stock that is purchased from this list is done after a considerable decline in the price and rigorous due diligence.
Lululemon Athletica (LULU): A Look Back on the Product Recall
Lululemon (LULU) announced that it has restocked its flagship product, luon yoga pants (here), after the company pulled the product in March due to excess sheerness. When the problem occurred in mid-March, the stock had taken a big hit, falling from around $70 to $62 (here). In retrospect, one can see that it was a great buying opportunity since the stock has recovered all its losses and then some.
I must admit that my knowledge of the company is limited but (thanks to my wife) I do know that Luluemon manufactures and sells high-end yoga apparel. As such, Luluemon commands a sizable profit margin of 27% compared to Nike (NKE) at 12% and Gap (GPS) at 7%. My wife swears by their products which led me to ask her several questions about the company and the stock.
I posted a general question on the perception of the brand to which she replied:
I like them, but wouldn't buy anything from them yet. This incident will lead them to tighten their quality. I thought about buying Athleta (a division of Gap), but I still preferred Lululemon brand. The stock prices are dropping. I think I would buy their stock.
Since that conversation on March 20th, the stock has risen more than +25%. The thought of speculating crossed my mind but no action was taken. Foregoing the potential profits (or loss) doesn't bother our team since we believed that opportunities often resurfaced.
But what then can we learn from this event?
The key take away is that one-time problems can make or break a company but it may create buying opportunities. As expected, Lululemon has tightened quality control as they have announced all their bottoms will undergo 15 tests!
If an investor has limited understanding of the stock market or investing the approach of Peter Lynch to "buy what you know" is a legitimate way of investing or speculating, with a healthy understanding of risk. One last important lesson I learned, always listen to your wife.
Insurance Watch List: June 1, 2013
Anyone who wishes to be successful in insurance stocks should read the book The Davis Dynasty by John Rothchild. The book starts with Shelby Collum Davis investing approximately $50,000 to $100,000 that ultimately grew to $900 million after 47 years. The strategies employed by Davis seem highly accessible to average investors.
Below is the insurance watch list for companies that are within 20% of their respective 52-week low.
Dividend Watch List: May 31, 2013
Below are the 14 companies on our U.S. Dividend Watch List that are within 11% of their respective 52-week lows. Stocks that appear on our watch lists are not recommendations to buy. Instead, they are the starting point for doing your research and determining the best company to buy. Ideally, a stock that is purchased from this list is done after a considerable decline in the price and rigorous due diligence.
S&P 600 Small Cap Index Additions and Deletions
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Netflix Added to the Nasdaq 100…Again
We have always maintained that those who administer the composition of stock indexes such as the S&P 500, Dow Jones Industrial Average, Nasdaq Composite do so in the fashion of rank speculators. As further proof, it was announced that Netflix will be re-introduced to the Nasdaq 100 Index (found here). Below is the charting of Netflix being added and dropped from the Nasdaq 100 Index:
In our article titled “Virgin Media Gets and Offer and Other Important Lessons” we said:
“Look for Netflix (NFLX) to be one of the two stocks added to the Nasdaq 100 index as the stock is twice the price that it was when it was booted from the Nasdaq 100 Index in December 2012, less than two months ago.”
In our article titled “Nasdaq 100: 2012 Re-Rank Review”, regarding the 2011 changes to the index, we said:
“As was the case in previous changes to the Nasdaq 100, the stocks that were added could not exceed the returns of the stocks that were dropped from the index.”
Also regarding the 2010 changes, we said:
“In the middle of a bull market run, the stocks that were added to the Nasdaq 100 Index on December 20, 2010 (found here) have underperformed by a wide margin when compared to the Nasdaq 100 over the last 2 years.”
Finally adding:
“However, as we've indicated with the Dow Industrials in the past (found here and here), being added to an index usually occurs when a stock has already seen its best performance and is far likelier to decline than rise over the medium term (1-3 year period).”
The Nasdaq 100 and the Nasdaq Composite Index are not below their respective 1999 peaks because the companies in the index haven’t rebounded. Instead, as we’ve demonstrated regarding the Dow Industrials from 1929 to 1954, the indexes are below the 1999 peak because the selection of stocks to be added to the index at their high price and popularity instead of near their low price and solid valuations.
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Posted in Nasdaq 100, NFLX, re-rank review