In a recent blog post, we described how to create a screen to spot stocks using indicators that appear to be important to Warren Buffett. Our screen focused on a few fundamental indicators and targeted companies with high return on equity, strong cash flow and management teams that maximize the return on assets investors have entrusted to them.We used the free screening tool at the FinViz web site and applied the setting shown below.As we noted, our screen serves as a reasonable starting point for additional research. One avenue for research is in stocks Buffett cannot buy.He runs ...
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In the never ending search for a potential market top, some analysts use sentiment analysis. This type of analysis relies on sentiment indicators which are tools that are designed to identify how investors feel about a market. Sentiment is independent of fundamental information and price data and is based solely on feelings, which can provide significant information not factored into the fundamental or technical picture.Sentiment analysis is based on logic. The general idea is that when everyone is bullish, everyone is fully invested in the stock market and the market is unlikely to go much higher since there aren’t many ...
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Over the long run, the biotechnology sector has been a consistent winner in the stock market. The chart below shows the biggest winners among sectors over the past five years and biotech is near the top of the list.This has often been the case for most of the past twenty years or so. As a group, biotechs have done well. There are always winners and losers within the group but the winners have usually done so well that the sector is consistently on the list of best performing sectors over the long run.Recently, that has not been the case. The ...
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Last week we reviewed the failed bid for Unilever that had Warren Buffett’s backing. As the world’s greatest investor, we find it useful to study not just what Buffett says but also what he does. His actions are, of course, more important than his words. Buffett’s actions are usually only known when a deal is announced. With Unilever, we had an opportunity to study a failed deal.The deal failed because Buffett was true to his word. In interviews, he has explained that combining the consumer brands of Unilever with those of Kraft Heinz looked like a good deal. A representative ...
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Even though we are in a bull market, not all sectors participate in the major trend at the same time. While financial stocks have been doing well lately, energy stocks have been underperforming the broad market. This pattern is almost always seen in the stock market and is the basis of a trading strategy known as sector rotation. To benefit from sector rotation, traders can look at stocks in sectors that are lagging the broad market, buying them when they are bargains expecting their sector to recover in time.Energy stocks have been beaten down for some time but there are ...
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Warren Buffett can be thought of the way Winston Churchill once described the Soviet Union, In 1939, Churchill said, “I cannot forecast to you the action of Russia. It is a riddle, wrapped in a mystery, inside an enigma; but perhaps there is a key. That key is Russian national interest." This sums up Buffett.No one can forecast what the great investor will do but there is value in trying to understand his actions. Buffett has attained a remarkable record of success with returns averaging more than 20% a year over a 50 year career. If we could understand his ...
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Finding winners in the retail sector can be challenging. Target (NYSE: TGT) demonstrated this recently. The stock plunged more than 12% after the company reported sales and earnings that missed Wall Street's expectations. Missing earnings is usually bearish but it’s especially bad for a retailer to miss fourth quarter earnings since that is traditionally the strongest quarter for companies in the sector. Target compounded traders’ concerns by lowering its outlook for this year.Target’s CEO explained the problem, noting "Our fourth-quarter results reflect the impact of rapidly changing consumer behavior, which drove very strong digital growth but unexpected softness in our ...
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Concerns are growing that the stock market overvalued. A number of indicators, including the price-to-earnings (P/E) ratio, are at historic highs. The chart below shows the P/E ratio now and at previous bull market highs. The average P/E ratio at market tops is 19.2. Now, the P/E ratio is 25.6, well above that average. The current P/E ratio is higher than seen at any other market top since World War II except for the 2000 top that ended with the Internet bubble.P/E ratios are just one way to look at the market but they provide important insights into the market. Earnings, ...
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