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Up 70% So Far... Why I'm NOT SellingBy
Tuesday, March 12, 2013
True Wealth Systems subscribers are already up 70% on shares of health care stocks...
We're sitting on fantastic gains on this trade that I recommended early last year... But my friend, we have no plans to sell.
We don't sell things simply because we're up 70%. We sell when it's time to sell. And we aren't there yet. I expect these stocks will soar much higher before this great stock market run is over.
We're staying in the trade for two very important reasons:
These two things sound simple enough. But they are incredibly important... They are two big keys to successful investing. Let me briefly explain each...
First up, my True Wealth Systems subscribers bought the ProShares Health Care Fund (NYSE: RXL), which is a leveraged trade on drug stocks. Despite the move higher in the health care sector, these stocks are still cheap based on history.
Here's how I explained it in True Wealth Systems: "Drug stocks today are just as cheap as they were back in 1984, when they took off for thousands of percent gains over a massive 15-year bull market."
I also explained what happened in the last great bull market in drug stocks: Johnson & Johnson rose 2,393%. Pfizer rose 3,289%. Merck rose 3,018%. And Amgen rose an astounding 31,150%. (These four companies are the top holdings of RXL, making up 25% of the fund.)
Even better, you could argue drug stocks are a better deal today than they were back in 1984...
You see, these four names pay a 3% dividend, while 10-year government bonds are paying 2%. This shouldn't happen, because you have upside potential in these stocks. But you have essentially no upside potential in a bank deposit or a bond you buy and hold to maturity.
Back then, I wrote, "In order for things to return to normal, either drug stocks must more-than-double in price (which would push their dividend yield below 2%) or government bonds must crash. Either is possible. But I put my chips on drug stocks doubling first."
So far, that's been the right advice. Drug stocks have soared, while government bonds are still paying 2%. But drug stocks are still cheap. Johnson & Jonson, Pfizer, Merck, and Amgen on average pay a 3% dividend and trade at just 12 times forward earnings.
As for the second part, we want to stay with this trade as long as possible. We want to capture the BIG moves... the thousand-percent winners, if that happens. And you can't do that by selling early.
Back then, I wrote, "We can't know if THIS current move is THE big one. But it certainly could be. So we want to be on board."
We want to stay with the uptrend as long as possible... even beyond "reasonable" valuations... particularly now, while we're in the Bernanke Asset Bubble. In short, as long as Bernanke keeps interest rates low – which we expect him to do for the next two years, at least – investors have no choice but to buy stocks.
So yes, we're up 70% since early last year in RXL. And no, we're not selling. The story is still intact. And we still have the uptrend.
If you're sitting on big gains in safe, cheap stocks like these drug stocks right now... and it's making you nervous... get over it!
Have your exit plan in place – like a trailing stop. But don't sell. As I've explained many times in previous DailyWealth letters to you, this market has the potential to run much higher.
Look, you can't make triple-digit gains by selling early – and triple-digit gains are definitely possible here.
We're up 70% since buying RXL in early 2012... But we don't have a compelling reason to sell, so we won't!
Good investing,
Steve
Further Reading:
"It might be scary to hang on with stocks near all-time highs," Steve wrote last month. "But as I explained, it's the right thing to do today." See why the True Wealth Systems computers say you SHOULD buy at new highs here.
"You don't want to bail on the Bernanke Asset Bubble yet," Steve writes. "This is only 'middle innings' – and the biggest gains come in the last innings." Read more here: Stocks Are Near All-Time Highs... But It's NOT Time to Sell.
Market NotesANOTHER SIGN THAT THINGS CAN'T BE ALL THAT BAD Today, we share another entry in the "things can't be all that bad for the U.S. economy" category...
Over the past year or so, we've shown how the strength in retail stocks, Home Depot, homebuilders, hotels, and transportation stocks are all good signs for the health of the economy. And while few would argue we're doing "great" right now, the positive share-price movement in those sectors shows we aren't doing "all that bad," either.
We have another addition to that list: U.S. employment. The latest employment numbers beat estimates in January and February. And when employment levels are on the rise, shares of payroll-processing giant Automatic Data Processing (NASDAQ: ADP) soar. The company's customer base includes over half a million companies, with more than 80% of its business coming from the U.S.
As you can see from the 10-year chart below, ADP is hitting new highs. It's up nearly 10% in the last three months alone. So while we agree things aren't entirely rosy in the economy, things can't be all that bad, either.
– Sam Latter
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