On to the current market, it remains a choppy environment. After a four-week pullback from mid-February to mid-March (bottoming as fears of Japan’s nuclear troubles reached a fever pitch), the market spiked back toward its bull market highs (and some smaller-cap indexes actually ripped to new peaks). Many leaders took flight. It looked like the bull run was ready to resume.
But the action of the past week has thrown some cold water on that idea; many indexes are back to, or slightly below, their key 50-day moving averages, and more than a few leaders have given up a good chunk of their gains. Plus, seeing as how the market had “only” a four-week correction after a six-month advance, there weren’t a plethora of long, sound launching pads among stocks, as we saw last September.
Where is the market heading? Honestly, I’m not sure … and I don’t have to be. While many investors crave certainty, the fact is, at times like now, it’s best to play things halfway. I wouldn’t be aggressively invested at this point, because the market has stalled out for the better part of two months, and many leading stocks look a bit tired after huge runs since last fall.
That said, I also think this two-month pause is just that—a pause within an ongoing, longer-term bull move. I haven’t seen any real signs that a damaging bear phase is on the horizon. Because of that, I wouldn’t be overly defensive.
Bottom line—I’m optimistic longer-term, but a bit cautious shorter-term. That means holding some cash and cutting back on most new buying, but also holding resilient stocks and doing some selective new buying when opportunities arise. In other words, these are the times when solid stock picking (and chart reading) can shine, as the throw-a-dart-and-make-money environment has passed.
On that note, one name I’m watching closely is MercadoLibre (MELI), also known as the Latin American eBay. (In fact, eBay still owns a chunk of the firm.) The business is very similar to eBay, with online marketplaces in a dozen countries, as well as its own payment system that is growing rapidly. And of course, it also has some advertising revenue, helping to monetize its 32 million unique visitors per month.
The stock actually hasn’t been a leader for a while, peaking back in late-September around 77, and then consolidating until mid-March (when the stock was 64). Part of that was due to decelerating growth—earnings, which had been advancing at triple-digit rates, grew “only” 38% in the fourth quarter.
However, estimates call for 25% growth this year and 32% in 2012, and both of those figures are likely conservative. Impressively, the stock has been shot out of a cannon during the past few weeks—lifting to 87 on good volume, and has refused to give up any ground during the market’s dip of the past week.
My only rubs with buying MELI here are, first, it’s a relatively thinly traded (and historically, a very jumpy) stock. Plus, earnings are likely out the first or second week of May, which is always a risk. And, of course, the market itself, while not in terrible shape, is basically on the fence here.
Even so, the story and price action of MELI is enough for me to put it on my watch list. If you’re aggressive, you might try to buy a little on weakness (maybe in the low 80s) and then see how the stock reacts to earnings.
P.S. Mike Cintolo is VP of Investments for Cabot, as well as editor of Cabot Market Letter, a Model Portfolio-based newsletter of the best leading growth stocks in the market. It’s been more than four years since Mike took over the Market Letter, and during that time, he’s beaten the market by 14.1% annually (up a total of 65% since he first took the reins, compared to a loss of 6% for the S&P 500) thanks to top-notch stock picking and market timing. If you want to own the top leaders in every market cycle, be sure to give Cabot Market Letter a try.