Editor’s Note: Each year, roughly 74% of American adults set New Year’s resolutions. While “get healthier” is usually the top resolution, “save more” is a close second.
And on Wednesday, December 14, at 8 p.m. ET, we’re going to help you get closer to achieving that “saving more” resolution… $50,000 closer, in fact.
During the FREE online event, Chief Investment Strategist Alexander Green and Chief Income Strategist Marc Lichtenfeld will sit down with TradeSmith CEO Keith Kaplan to discuss The 2023 $50,000 Income Challenge.
During the event, Alex, Marc and Keith will reveal how to add $50,000 or more to your income over the coming year without buying any new stocks, bonds or options.
This is such a valuable presentation that we’ve arranged for Oxford Club Members to attend for FREE. Simply register HERE to save your spot.
– Nicole Labra, Senior Managing Editor
One of my managers (let’s call him Rex) was out with his son after baseball practice on a recent Friday evening and pulled into the drive-thru at McDonald’s.
Rex pulled his Ford up to that big, lighted menu and ordered a Big Mac, two large fries, a Sprite and a Coke – only to have the disembodied voice in the speaker come back with “I’m sorry, sir, but we’re out of Coke.”
On a weekend.
The story gets better. When Rex expressed his surprise over his “Coke-less” meal, the drive-thru worker actually sighed and said, “And unfortunately, sir, this isn’t the only time this has happened lately. We’ve run out of Coke a lot.”
This isn’t a rural Mickey D’s we’re talking about. This particular location sits at the intersection of two busy highways not far from downtown Baltimore, where my company, TradeSmith, has its corporate offices. And McDonald’s restaurants, in general, are known for an almost robotic efficiency.
So when an iconic company like this one is consistently unable to provide its customers with a staple of its business (a Big Mac and a Coke are about as foundational as it gets), I see it as the latest sign that trouble’s brewing for the U.S. economy and, by extension, U.S. stocks.
It’s also a very real warning sign for investors like you – a sign that urges you to minimize risk, to avoid reckless speculation and to focus on income, investment quality and wealth building for the foreseeable future.
In short, as I told listeners during my recent appearance on the Stansberry Investor Hour podcast, it’s time to become a “real investor.”
No two ways about it.
And I’ll take a few minutes here today to detail exactly what real investors do.
My Tip Sheet for Profits
There’s a frequently used investing maxim we’ve all heard: “Things are different this time.” We hear that line when investors want to justify speculative excesses or give themselves permission to buy junk while ignoring valuations, proven rules of accounting, and metrics like sales, profits or cash flow.
What my little tale about the Coke-less McDonald’s meal shows is that “things are different right now.” There are red flags everywhere.
So let me share seven tips that will help you stay disciplined.
1. Watch the world around you.
I used the anecdote about Coke being out of stock at McDonald’s as an example of the market’s abundant red flags because it’s relatable. But those causes for worry are everywhere – if you look. Take housing, another slice of the economy that matters to most of us – and another area that’s flashing one of the biggest warning signs I’ve ever seen. Earlier this year, I wrote that, on average, Americans were paying 36% more for homes than they were the year before. Emotion was the initial trigger for the massive run-up in housing – then sight-unseen appraisals and aggressive lending helped supercharge it.
But inflation – which must lead to higher mortgage rates – is the trap waiting to be sprung on an overvalued market. Shortages, inflation, corporate earnings misses… these are just some of the recession-heavy influences headed our way. When inflation cuts deeply into corporate earnings, firms start reducing staff, cutting corners and closing facilities. Moves like that will fuel a recession and boost unemployment. We could see a big reversal in unemployment numbers almost overnight. So be a careful observer – and let your observations remind you of the need for caution, structure and a long-term view.
2. Don’t mistake a bear market rally for a bull market rebound.
Where are we now? There can be some great share-price rallies on the way to a market bottom. And we’re seeing lots of micro-rallies lately. But I can’t say the bottom is in yet. We’re just not seeing the bullish indicators come in for the big indexes. That means you must take extra care with everything you do. And you can’t abandon that caution at the first sign of an uptick in stocks.
3. Take out the trash.
Kill all the losers. Get rid of everything in your portfolio that is down and hasn’t bottomed – especially companies that are speculative, that don’t have sustainable businesses and that aren’t generating the cash flow that could help them navigate a recession.
4. Don’t throw darts.
Coming out of the pandemic, I bought all the high-flying stocks – and I understood that it was an era of speculation. But now’s not the time to be bold – or reckless. It absolutely is not the time to be buying a whole bunch of speculative stocks. When I say “speculative stocks,” I’m talking about companies that aren’t making money, that have no free cash flow and that are groaning under heavy debt. Speculate on such companies now, and you’ll be on the wrong end of the trade, watching a portion of your hard-won wealth wiped away.
5. Buy businesses, not stocks.
This is an important follow-up to my “darts” comment. And it’s a bit of a mindset change. Stop thinking about buying stocks. Pretend you’re investing directly in a business. Look for “forever” businesses that are going to survive any recession: companies with iconic brands and definable, protective economic moats. I especially love businesses with hefty cash hoards and strong free cash flow. Companies like that can buy back stock, gush dividends and generate “inorganic” growth during an economic slowdown by using their cash to buy out rivals, purchase complementary product lines or just ride out sector lulls. That’s what it means to invest in businesses, not stocks.
6. Remember that green means “go.”
I’m a software guy and an entrepreneur – not a hedge fund manager or an investment banker. So trust me when I tell you that, at TradeSmith, we have a system that is simple to use. It’s based on technical analysis and momentum, and it gives clear red (sell), yellow (be careful) and green (buy) ratings.
Our system loves energy and utilities right now. Those sectors are in the healthy Green Zone. And the sectors continue to strengthen as inflation tightens its grip on every facet of our economy. Healthcare was in the Green Zone until recently, but the underlying stocks are a bit of a mixed bag.
Since we’re talking about taking extra care here, we can add a splash of fundamental analysis too – specifically free cash flow (FCF). Stocks that are in that healthy Green Zone – that are also throwing off lots of green (as top FCF generators) – include Exxon Mobil (NYSE: XOM), Chevron (NYSE: CVX), Johnson & Johnson (NYSE: JNJ) and UnitedHealth Group (NYSE: UNH). Meshing the technical and fundamental gives you multiple layers of conviction, which investors should be looking for against a backdrop as uncertain as this one.
7. Create a watchlist.
There are great businesses out there that may not be great buys right now. Take Walt Disney (NYSE: DIS), one of my favorite companies of all time, for example. It’s in the Red Zone right now. But that doesn’t mean it’s not still a great company. If you’re a strict adherent to our system, you’ll wait until it’s back in the Green Zone to buy it. The same goes for Walmart (NYSE: WMT). Put these companies on your personal watchlist and follow them until they become buys.
Or if you have a lengthy time horizon and a higher risk tolerance, consider buying these “forever stocks” to hold as wealth builders.
Other great FCF companies that aren’t necessarily buys right now include Alphabet (Nasdaq: GOOGL), Amazon (Nasdaq: AMZN), Meta Platforms (Nasdaq: META), Microsoft (Nasdaq: MSFT) and Pfizer (NYSE: PFE).
The bottom line here: Putting money into real businesses can help you grow your wealth over the long term. Take a careful look at the world’s best businesses – the “forever stocks” that are now or will soon be trading at multiyear lows.
If you exercise caution and do the work, you can always find real opportunities.
Even if you can’t find an ice-cold Coke.
Have a nice day,
P.S. Are you up for the challenge?
On Wednesday, December 14, I’ll sit down with Alex Green and Marc Lichtenfeld to discuss how to add $50,000 or more to your income over the coming year without buying any new stocks, bonds or options. We’re calling it The 2023 $50,000 Income Challenge.
It’s completely free to attend. Simply click here and then enter your email address to reserve your spot for the online event.