Now to the question that’s surely on everyone’s mind: What do I think of the market here? My answer: Shorter-term, I’m cautious. Longer-term, I’m optimistic.
While I’m certainly not buying with both hands right now, I am viewing this period of time as the market’s first consolidation/pullback/whatever-you-want-to-call-it since the bottom was put in back in March. It’s been going on for about one month now, allowing many stocks to build fresh launching pads. So in that sense, it’s relatively normal.
Is there a chance this could turn into another market rout? Anything is possible in the stock market–you’re not going to hear me say that the market will “never” do something. But right here, I am very much leaning toward the view that this sloppy action in the market is going to lead to further upside … eventually.
I could offer all sorts of predictions, but what’s the point? The market is going to do what it’s going to do, so your best moves are two-fold. First, trimming your sails a bit right here; selling your worst performers and your losers, and holding some cash, is prudent.
Second, however, is to NOT stick your head in the sand. Right now is when you should redouble your research efforts, building your Watch List with stocks that are resisting the market’s downward pull. When the market gets going again, these will likely be the stocks that bring the best profits, especially if they react well to their upcoming earnings releases.
One such stock I’m following closely is the #1 glamour stock in the entire market–Green Mountain Coffee Roasters (GMCR), which we’ve written about a few times in recent months. For most investors, GMCR only came on their radar in late April, when the stock gapped up 37% on its first quarter earnings report. Yet the stock is actually up since that huge move, and it’s still holding up well despite the market’s weakness, consolidating the past five weeks.
Flash Player 9 or higher is required to view the chart Click here to download Flash Player nowAnd why not? The company has one of the most attractive razor/razor-blade business models we’ve ever seen, addressing a mass market as big as there is. (Coffee, tea and cocoa drinkers.) The company already owns about 6% or more of the total coffee brewer market thanks to its Keurig single-cup brewers (it varies a bit by the quarter), and I see no reason it can’t get to 10%, 15%, 20% or more in the years ahead. And each brewer sold leads to an immense amount of recurring income from the K-Cups used.
One of the biggest positives in my mind is that the top two brands of at-home coffee makers (Mr. Coffee and Cuisinart) have thrown in the towel and decided to team up with Keurig to launch co-branded, K-Cup based single-cup brewers in the months. That tells me that Green Mountain’s 80% share of the single-cup market is likely to last for years.
Of course, earnings are coming up around the end of the month, and if for some reason they disappoint the lofty expectations, I know GMCR can get hit. But I think, if you didn’t buy any after the earnings gap because you thought it was overheated, that you can buy a little (i.e., maybe one-third or one-half of what you’d normally buy, dollar-wise) around here and see how the stock does in the weeks to come. It’s still as big a story as there is.
Note: GMCR is being followed by Cabot Top Ten Report and Cabot Green Investor.