My major thought process at this point is that considering the market’s September advance–which, remember, is coming on the heels of a four-and-a-half month, 17%-20% correction—has been so strong and so persistent that, at least for the best leading stocks, I believe any coming weakness is buyable.
Now, that doesn’t mean that if a big leader falls 20% on its earnings report next month, you buy. No! I’m talking about reasonable weakness … those normal pullbacks of 5% to 10% that can take place over a couple of weeks. The “good” news for investors looking to do new buying is that earnings season usually brings volatility, and many leaders are beginning to look a little tired, which is normal after their straight-up rallies of the past few weeks.
One stock I think is definitely worth keeping an eye on is NetApp (NTAP). To me, this stock is one of a dozen or so “liquid leaders”—those stocks that trade hundreds of millions of dollars every day, so you know big institutional investors are trafficking in the stock. Granted, it doesn’t have the name recognition of Apple or Baidu, but it has nearly as much potential.
Why? Because it’s developed into the King of Storage, which, in this new cloud computing world, is a great thing to be. Here’s what I wrote about NetApp in Cabot Top Ten Weekly on September 13:
“On one hand, NetApp is a data storage company, and we know from experience that data storage stocks that fly to the sun often crash and burn. On the other hand, NetApp is at the heart of the biggest driving force of information technology buying today, the move to cloud computing. As this movement evolves, more and more institutions and individuals are finding that they can lower costs and increase productivity by storing their data somewhere in the cloud, and by using applications that are hosted in the cloud. And the simple fact is that no one knows how far this trend will go. As students of trend analysis, we know that trends typically go further than people expect, and thus we think the movement toward cloud computing—and NetApp—can go very far indeed. Revenues at the company have grown every year of the past decade, while earnings have grown every year save for 2009, and now earnings are roaring back. Profit margins in the second quarter were the highest in more than three years!”
The stock has been one of the best performers since the market blasted off at the start of September, which portends higher prices down the road. Like many leaders, NTAP is a bit extended to the upside here, but I think any pullback of a couple of points will be buyable.
Click here to learn more about NetApp and the other leading stocks featured in Cabot Top Ten Weekly.