A couple of health-care growth names are performing well after earnings, says Ken Shreve, who also shares his methodology for buying ETFs based on technicals and an understanding of each fund’s holdings. With dividends on investor horizons, he describes a couple of ETFs with high yields.
Kate Stalter: I’m speaking today with Ken Shreve. He is a columnist for ETF Profits and RealMoney at Thestreet.com, and he also writes Ultimate Growth Stocks, a newsletter at tfnn.com, and hosts his own radio show, “Breakout Investing.”
Ken, give us a little bit of background about your methodology to identify growth stocks, which combines fundamentals and technicals.
Ken Shreve: As you know, and many listeners probably know, I spent a good 12 to 13 years at Investor’s Business Daily. So most of my investing methodology is based on how Bill O’Neil teaches the market, looking at stocks with strong fundamentals that are showing relative price strength in the market. They are leaders in their industry group. They are not laggards in their industry group.
So I really try to look at the highest-quality merchandise in the market, as much as possible. I never try to catch falling knives. I really just try to focus on industry-group leaders that are firing on all cylinders in terms of earnings and sales growth. They’re innovating with a new product, and I’ve found over the years, that’s generally the best way to outperform the market.
- Also read: 3 Growth Stocks with Good Support
Kate Stalter: Now in the recent market volatility, it’s been a very challenging environment for various styles of investing. Growth investing has certainly been an area where people have found it challenging. Tell us some of the names that you’re identifying at this juncture, Ken.
Ken Shreve: I run a model portfolio with my Ultimate Growth Stocks newsletter over at TFNN, and a couple of names that I’ve held for a while: I’m really keen on Biogen Idec (BIIB) here.
The market has come up nicely from the October 4 lows. We’ve had a couple of separate instances where we saw some good follow-through in the Nasdaq and the S&P 500. So even though the volatility is out there in spades, and you never really know what headline is going to come next out of Europe, I still think there are a lot of growth names that continue to work quite well.
So Biogen Idec is a real high-quality biotech. They recently reported nice earnings, and sales of their MS drug, Tysabri, continue to do well. But the thing about Biogen: really all of the buzz is about this potential blockbuster drug, BG12, which is an oral MS treatment in pill form.
There’s one other out there on the market right now, but some are saying that Biogen’s going to be able to generate $3 billion to $4 billion in annual sales from BG12. Very favorable late stage clinical data on two separate occasions. So, big fan of Biogen Idec here.
- Also read: 5 Great Long-Term Growth Stocks
Another high-quality stock that recently reported another strong quarter—that I’m happy to own in my model portfolio—is Intuitive Surgical (ISRG) on the Nasdaq. They make the Da Vinci robotic surgical system. Big gap-up recently, and the stock continues to trade pretty well, so I’m optimistic about the future for that company.
You know, I’m still seeing other stocks out there that continue to look pretty good, as well. So I’m optimistic that we will continue to head higher into the end of the year.
But again, you mentioned this tough market, and I’ve talked to fund managers that have been doing this for 30 or 40 years, and they don’t recall a time in the market where it’s been more difficult. The volatility has been certainly tough to stomach in recent weeks.
|pagebreak|Kate Stalter: One of the things, certainly, that’s come as a result of some of the volatility has been that a lot of investors are seeking yield. So let’s just switch gears a little bit. You write about ETFs, Ken. How can ETFs be used to achieve that objective?
Ken Shreve: Well, I think it’s the best vehicle for investors at this point. I talk to people all of the time and they’ll ask me about an individual stock that’s yielding 10%, 15%.
So it’s like this eye-popping dividend yield, but when you look at the actual stock itself, it’s sitting hear 52 week lows, it’s been hammered pretty well by institutional selling in recent months, and it really just looks like a bad stock, despite a huge yield.
So I think that the ETF market is really a solid way for investors to play yield. You’re not looking at individual stocks in an ETF. You’re just getting a basket of stocks.
I wrote about a fund recently that probably a lot of people haven’t heard of, and it’s called Alerian MLP ETF (AMLP). It’s basically an ETF that tracks the overall performance of the US Energy infrastructure master limited partnership asset class, so the fund holds names like Kinder Morgan (KMP) and Plains All American Pipeline (PAA). A lot of these companies that are involved in the transportation, storage, and processing of minerals, natural resources, and these types of things.
A lot of the stocks this fund owns have very healthy dividend yields, and they also offer strong price performance in the market. There was just a big acquisition in this space—remember shares of El Paso (EP) gapped up recently. They are being bought by Kinder Morgan.
So the fund has really gotten a good lift, and it’s really showing strong signs of accumulation, and it yields 6.1%. So not only are you getting strong price performance from the Alerian MLP ETF, but you’re also getting a nice dividend yield, as well.
I track a model portfolio over at ETF Profits over at TheStreet, and another dividend fund that I own in that model portfolio is the iShares Dow Jones Select Dividend ETF Fund (DVY). It yields 3.6%. It owns names like Chevron (CVX), McDonalds (MCD), and Lorillard (LO), which is a strong performing tobacco stock, so good yield in that fund as well.
Kate Stalter: Let me ask you this, Ken: Do you recommend trading ETFs the same way that you do with the growth stocks? In other words, to be looking for some of the same technical buy and sell signals?
Ken Shreve: Yeah, because the ETFs are based on supply and demand, just like stocks.
What I found following the ETFs for as long as I have and writing about ETFs for TheStreet, is that they don’t move as fast as individual names. That can be good sometimes and bad other times, but they’re just less volatile than owning an individual stock.
So when I’m looking for an ETF to purchase, I do use some of the same criteria that I use when evaluating a stock. I do like to look at strong price performers in the ETF space.
In other words, I like to look at ETFs that are showing signs of accumulation or professional buying. I like to focus on ETFs that are rising in heavy volume and when they’re pulling back, I like to see them pull back in light volume.
So technically, in terms of analyzing price and volume, my approach is very similar to ETFs and individual stocks. Of course, fundamentally, you really can’t evaluate an ETF that way. It’s a little different than with individual stocks.
But it’s also important to understand the holdings of the ETF that you’re considering. Look at the makeup of the fund. Does it own 30 stocks, or does it own 400 stocks? But when analyzing the charts, I do use a lot of the same criteria that I use in individual stocks.
Kate Stalter: So you’re not necessarily looking at the ETFs as buy-and-hold plays, the way some advisors might consider them?
Ken Shreve: You know, I do. Most of my investing is with my model portfolio, my growth-stock model portfolio. There I try to be an investor as much as possible—in other words, buy stocks at the right time and hold onto them for a long-term gain.
Recent market volatility has made that a little more difficult than it normally is. With ETFs, I actually tend to be more patient with those, because they don’t move like a typical growth stock. When the Nasdaq is down 2% one day, it’s common to see a growth stock fall 4% or 5% because of the beta. They’re just more volatile stocks.
But with ETFs, you don’t tend to see those big price swings on an intraday basis, so you can be a little more patient with ETFs. So I would say that I do handle them generally a little different than with individual growth stocks, because ETFs, even if you’re in a tech fund, they tend to keep their price swings on a relatively tight leash.
- Also read: These 3 ETFs Are Very Timely Buys
Unless, of course, you’re in a double-inverse or one of these triple-inverse ETFs, which I don’t recommend, and I don’t buy those at all. Those can be very volatile. But by and large, ETFs tend to keep their price swings on a tight leash.