QUESTION: How much longer should I keep holding onto McKesson (MCK)? I've had it through one split! — Tom
SCOTT BLEIER: Tom, MCK is a keeper. It is fairly valued at just 18 times its 2007 estimated earnings and is a strong grower. They are in a business that is rather timely; their business works to reduce costs in the healthcare industry. Fundamentally, their business has grown every year for the past decade and the stock has done well. Technically, the stock has kept a slow and steady uptrend since the year 2000, when it was just $20. The stock has recently pulled back from its high near $55 and is consolidating at important support in the high 40s. Not only would I hold it, I would consider buying more at this level.
QUESTION: If you were retiring and could only buy one stock for your IRA, which would give you a dividend and some inflation hedge, what would it be? Thanks — Roger
SCOTT BLEIER: Roger, I would not recommend buying just one stock in your IRA. First, you should not put all your eggs in one basket. You must diversify to make sure you are not taking undue risk. Owning only one stock is too risky a proposition for your retirement. Instead of owning just one stock, you could own just one mutual fund, as the risk is spread over many stocks. Do your homework and find a fund that has a consistent long-term track record of performance. The Olstein Financial Alert Fund comes to mind (OFALX) comes to mind.
QUESTION: Assuming volatility persists and the market downs to 9500-10000 would you be going in and picking stocks up on down days, or try to pick them as they rise on up days and sell them in the following days as they go higher? Or, conversely, would you take a conservative approach and wait for the market volatility to expire? (Much like Triple Witches, and wait for the Monday after they settled down and hope there's something still left on the lower branches.) — Pete (Eldersburg, MD)
SCOTT BLEIER: Pete, that's quite a question. The answer is, "it depends."
Your strategy in investing or trading stocks depends on your suitability and goals. Investors who look for long-term appreciation are smart to accumulate stocks in a weak market and sell into a strong one. That usually takes an intermediate-term time frame to accomplish successfully and requires positive fundamentals from the stocks you buy.
A short-term trader may choose to buy strength, hoping momentum continues, and selling quickly at a higher price. But that is a much more speculative endeavor, as a momentum trader tends to ignore the fundamentals of a company.
Both approaches have their risks and rewards. Your strategy must depend on your tolerance for risk.
QUESTION: I am really puzzled by the price action in many of the mining stocks. While gold and silver are trading near 26-year highs, many of the mining stocks are not participating in the rally. Is this solely due to the fact that many people believe that the price of precious metals cannot sustain their bull run? — David (Reno, NV)
SCOTT BLEIER: David, your conclusion about metal stocks rings partly true, but there are other factors at work. Some mining companies have "locked into" a specific price for their commodity as a hedge against a downturn in price. The tradeoff for their downside protection is the inability to participate in price gains. Companies that are leveraged to their commodity take more risk and derive more reward.
Another factor is that sometimes the stocks in mining companies are "smarter" than the commodity itself. For example, sometimes mining stocks will rise or fall before the commodity in question. In essence, mining stocks many times will lead the price of the commodity.
In the current circumstance, mining stocks never made new highs while the metals did. Yet, shortly after the new highs were reached, a significant correction occurred. By not making new high, mining stocks accurately forecasted the coming correction.
QUESTION: What do you think about Toyota (TM) stock, especially after the introduction of the hybrid Camry? — Mark (Queens, NY)
SCOTT BLEIER: Mark, Toyota is arguably the most successful car company in the world today. It certainly is by market capitalization with a value of over $175B. Compare that to Ford and GM with about $13B in value each. Toyota's stock is fairly valued and is certainly priced as the most profitable auto company in the world already.
That said; Toyota's stock is somewhat of a proxy for the Japanese economy and stock market — even though most of their sales take place outside Japan. The Japanese market is in the process of a correction and so is Toyota's stock. Its yearly high was set earlier this month at nearly $125, and it has pulled back about 13% since then. I believe the stock begins to look attractive under $100.
As far as hybrids are concerned, they are now being viewed as a stopgap measure on our way toward renewable fuels like ethanol and bio-diesel.