Question: I am holding about 100 shares of IBM. I was looking for a profit, however, it seems to be stuck in the low $80's. Also, after looking at a one year chart it doesn't look good to me. Am I wrong thinking it could test the $75 level or lower again before going back up? I'm thinking of selling right now and waiting. What do you think? — Ron
Jonathan Hoenig: Amazing how long “the long haul” can take, eh? IBM (IBM), once considered the bluest of blue chips, has been wallowing in the $80 range for the better part of four years. Considering you are already in the trade, all the analysis in the world doesn’t mean much at this point. Now the issue isn’t if you should take the position, but how to manage it.
Although you didn’t provide us with your entry price, I’m surmising from your letter that you currently hold shares at a loss. My advice would be to pick a stop-loss level underneath the current market price, enter the order with your broker on a “good-till-canceled” (GTC) basis, and sit back and let the market decide what it’s going to do. Personally, I’d put my stop-loss order near $76.05 — not far from where the stock traded last fall.
You ask if it could move back to $75 again — certainly it could. Of course, given the fact stocks have a bid right now, it could also jump back up to the $90 level it grazed late last year. Or it could break down below $60 and never look back. Nobody knows what’s going to happen. But in my experience, successful trading isn’t about predicting the future, but dealing with the present. Stop-loss orders help to define your potential risk and as the old saying goes, if you worry about the losers, the winners take care of themselves. Good luck!
Question: What does your crystal ball say about TYCO (TYC) and Liberty Media (L)? I have held these stocks for a few years with negative performance with TYCO and neutral returns with Liberty Media. — Stu (Paducah, KY)
Jonathan Hoenig: The best indicator of a stock is the stock itself. The very fact you’re experiencing negative performance for Tyco (TYC), for example, should be reason enough to consider making an exit from the trade. While other conglomerates such as Leucadia National Corp. (LUK), Siemens AG (SI) and United Technologies Corp. (UTX) have shown great strength lately, Tyco's shares have been stuck in the mud. Even interest from activist shareholders such as Carl Icahn hasn’t bumped the stock much. With the stock at $26.41, I’d put a stop-loss order for my position at $24.75. It’s not on my list as an idea for new money.
It feels as if Liberty Media (L) has been talked about as a value play for the better part the past decade. Indeed, even with all the buzz this stock routinely gets, one can’t help but wince at the knowledge that, at $8.15, the stock isn’t too far off from where it traded back in 1998. Even more ominous, shares of sister company Liberty Global Inc. (LBTYA) have recently been pummeled. Not exactly an encouraging sign.
That’s the problem with being a "value investor" often times, value investments stay that way year after year after year. What’s the point of owning a bargain if you’re the only one who tries to capitalize on it? I can’t say this is an area I’m finding any value in for my clients right now. Below $7.60 per share, I’d kick this long-time loser to the curb.
Question: Based on advice from a financial broker, I bought GOOGLE at $366.5 a month ago. It has been going down since and the reports coming out of the company are not encouraging. I think it was a mistake. Should I get out of it now? Should I wait a little to re-coup some of what I lost, then sell? — Lilian
Jonathan Hoenig: That’s one of the problems with most brokers they’ve got a million ideas of what to buy, but very little clue as to when to sell. I would hope that, before writing to a television program, you’d bring this issue up with the broker who initially gave you the advice. I’m always amazed how, even after a client has lost 20%, 30%, even 40% on a trade, many financial advisers can still say with a straight face, "It's about the long haul." Boy, I'll tell you — that takes some moxie.
Worse off, you mentioned you “have a lot invested in it.” What hurts most people’s bottom line isn’t their stock picking, but their asset allocation. Size kills and besides being a lousy stock picker, it sounds as if this broker steered you wrong by allowing you to put too many chips on one company …especially one as volatile as Google.
Although my hedge fund has no position in the stock, it appears to me as if the momentum funds that pushed it up last year are now running for the exits. The fact the charts shows several gaps in the $200 – $300 range also leads me to believe this terrific company might be a less than compelling stock over the next few months. My stops would be near the recent low of $330 a share.
Question: How safe are our Roth IRAs? Since Congress created them, could Congress in the future decide to heavily tax them to "fix" Social Security? It seems like there's too much money there for the politicians to ignore. — Tim (Dallas, TX)
Jonathan Hoenig: More than the bid-ask spread, terrible analysts recommendations, high oil prices, Ben Bernanke, commissions, loads, subscriptions, data fees, cable connections, computer hardware, software or research, the biggest cost to investing and wealth creation is without doubt #&151; taxes.
Taxes are Americans' biggest expense. The average law-abiding citizen works about 117 days to pay their taxes — 11 days more than it takes to pay for their food, clothing and shelter combined. The fact that I’m a reasonably smart, college-educated professional, and yet I still need to employ a professional tax preparer to explain the law to me should be an embarrassment to our government. With the exception of antitrust, no other area of the law is so arbitrary, subjective and open to individual interpretation. It’s downright impossible to succeed in a game where the rules are always changing, or play a piece of music when the composer can’t stop rewriting the notes.
Roth IRAs are safe — for now. But with government spending at record levels and interest rates jumping up, I wouldn’t be surprised to see taxes raised across the board as politicians scramble to pay for their pork barrel projects. My suggestion would be to keep a portion of your savings in private wealth, namely gold bullion, which can’t be easily confiscated by Washington fatcats. I’d also support politicians who correctly limit their activities to protecting individual rights, namely, the courts, police and military. From the Medicare drug plan to farm subsidies, the billions wasted on the “public good” is what will eventually bring this country’s economy to its knees.
Question: I'm looking to expand and diversify my portfolio and looking at companies in the "food" group, such as Campbell Soup (CPB), Hormel (HRL), Kellogg (K). Any thoughts in this area. Thanks — John
Jonathan Hoenig: Although my hedge fund doesn’t currently hold any positions in this sector, I’m impressed by the tasty price action currently being exhibited by many of the most prominent names. The most appealing of the ones you mentioned is by far Campbell Soup (CPB), home of well-known brands such as Prego Spaghetti sauce, V8 Vegetable drink, Pepperidge Farm cookies and, of course, Campbell Soup.
In February, the company reported that earnings rose 8% from a year ago; beating analysts estimates of 59 cents a share. Moreover, they’ve continued to innovate, announcing in recent months they’ve invented a new, low-sodium sea salt that will reduce the salt content of their soups by 40%.
The stock, which traded above $50 in the late 1990s, is appealing near $32 a share. If I were to take a position, I’d likely use a stop loss order around $26.90, representing a 15% decline from my initial purchase price.
One other name you didn’t mention but might want to have a look at is J & J Snack Foods (JJSF), whose products are well known to anybody who has ever had the late-night munchies or visited a convenience store in search of a quick bite. Among their popular brands is the irresistible SUPERPRETZEL, along with Icee frozen beverages and Mama Tish’s Italian ices. The stock is trading with a P/E ratio of about 23 and sports a market capitalization of just $620 million. My hedge fund has no position at this time.
Question: I would like to get your input on Vertex (VRTX) Please let me know what should I do, BUY or BUY AND HOLD. — Alex
Jonathan Hoenig: You’ve got to appreciate these biotechnology companies. They are literally miracle workers, regularly developing the life-saving remedies to combat humankind’s most devastating maladies.
Vertex (VRTX) develops drugs for HIV, hepatitis C, cancer and bacterial infection, among others. Just earlier this month, the company announced encouraging results of the Phase II trial for its experimental rheumatoid arthritis drug VX-702.
Unfortunately, if you’re looking to put new money to work, it’s tough to recommend Vertex because, in the span of under a year, the stock has already risen some 300%. Still, the trend is with the sector, and I surely wouldn’t bet against any of these groundbreaking firms. They represent the profit-seeking, life-improving entrepreneurship that truly makes this country great.
Jonathan Hoenig is managing member at Capitalistpig Hedge Fund LLC. He appears regularly on FNC's business program Cashin' In. At the time of writing, Hoeing’s fund held no positions in any of the securities mentioned.