Professional investor Kevin Marder notes that some high-profile growth names with good liquidity have held up well amid market turmoil. In today’s interview, he also names some MLPs and a REIT with good income potential.
Kate Stalter: Today we’re speaking with Kevin Marder of Marder Investment Advisors. Thank you so much for joining us, Kevin.
Kevin Marder: My pleasure, Kate.
Kate Stalter: I wanted to start out asking for your take on the current market conditions, and what you believe individual investors need to know about right now.
Kevin Marder: This is the third year of the bull that began in March of 2009. Typically a bull market will last for approximately 36 months or so, depending on how you measure. It’s been followed by a bear market of somewhere between nine and 18 months.
Looking at that from a big-picture point of view, this is a mature bull and it is certainly not expected to produce any of the gains that we saw in the first one to two years of the bull market. So we’re 28 or 29 months into it, and generally the third year of a bull market tends to be choppier, noisier, and less of a definitive trend.
What we typically see in the third year is averages continuing to make new highs. Generally when they make new highs, those highs are being accompanied by fewer stocks participating in the move, and that’s known as poor breadth of the advance. That’s actually what we’re just beginning to see in the last few months.
Kate Stalter: I know you tend to focus on individual stocks, more so than sectors or asset classes, for example. Tell us some of the stocks that you have been looking at lately that you see showing strength.
Kevin Marder: We kind of divide the growth sector up into what I call the “liquid glamours” and then the “speculative glamours.”
The liquid glamours are those larger cap, must-own names that institutions have to own if they’re going to be pursuing a growth-stock mandate.
For example, somebody like a Fidelity fund manager that has a growth stock mandate is going to really be forced to buy names like Apple (AAPL), Amazon (AMZN), Baidu (BIDU), Netflix (NFLX), Priceline (PCLN), possibly Green Mountain (GMCR). These are all liquid glamours.
They are stocks that typically have a steadier move to them, than say the speculative glamours. When they do begin to correct in a bull market, they have the benefit of large institutional investors stepping up to support them, and preventing the stocks from just completely being blown to smithereens.
So those have been the names that have been standing out lately, as being really the sole spot within the growth sector that has been positive.
The other side of the coin, the speculative glamours, have been really not particularly impressive since the June 16 low in the Nasdaq. We only have just a handful of them that have broken out of bases of at least five weeks or more, and have shown the volume on their breakout we generally like to see, and then has advanced at least 20%.
One of the litmus tests of any intermediate advance in the averages is, how many growth stocks are breaking out of bases, and how many are running up at least 20% before they pause? In a healthy move, we’ll see a lot of stocks doing this, and literally dozens and scores of such stocks.
In the current move, we’ve really only seen a few: Lululemon Athletica (LULU), Fossil (FOSL), Ulta Salon (ULTA), VirnetX (VHC), and SodaStream (SODA). These are some of the only names that have really broken out and moved up 20% or so, at least since this whole move began June 16, 2011.
This tells me that this is not a particularly great market phase for speculators to be looking at getting invested here.
So overall, I would say the growth sector is split. You have a few really larger-cap glamours that are doing well, that I mentioned. You have most of the speculative names not doing so well, so I would be very leery of putting money to work in any of these names just for the intermediate term.
Kate Stalter: Any other areas that you feel that investors should avoid right now?
Kevin Marder: Right now, I think the industrial sector would be an area I would stay away from.
This is a mature bull market, and if you combine a little bit of fundamental data in here, the purchasing manager’s report was not particularly positive. In fact, it was the least positive one we’ve seen in many months, and that tends to be a leading indicator of the manufacturing sector’s growth, which itself is highly correlated to economic growth overall.
So if the economy does continue to slow down as it has been, we don’t feel like the industrial sector is really where you want to put your money in.
Kate Stalter: You did mention a number of stocks that you refer to as the liquid glamours. Any other areas that you are putting money into these days to meet your investing objectives?
Kevin Marder: The gold and silver ETFs are very interesting. We’d like to wait until they pull back, though, before getting invested in them. So for investors that do not have any exposure there, we would wait for them to pull back a little bit more from where they’re at currently.
The reason why we like them is the reason that a lot of people cite as why they like the area. That is simply that as the dollar drops, these commodities become cheaper for foreign investors to buy.
We’re not expecting the dollar to recover from its years-long descent until there is some sort of credible deficit-cutting plan enacted in Washington that the market believes in. It’s not as important about what I think it is, as what the market thinks.
We just don’t see that happening any time soon. If it does happen, then gold and silver may be worth perhaps looking at exiting, but we don’t see that happening any time soon. As long as it doesn’t happen, the dollar should continue to drop, and we think that gold and silver will benefit from that.
Kate Stalter: You mentioned a number of different names and ideas today, Kevin. Anything else that you believe individual investors should take a look at, perhaps, to do some research on?
Kevin Marder: Well it’s very challenging for income investors to find anything at all that’s paying a dividend or interest coupon north of a few percent.
However, there are a few names that I think might be worthy of further research on the part of investors who are looking for some kind of income. We like the Master Limited Partnership sector, a couple of names there. The leader really in that particular area is Enterprise Products (EPD). Another one along with it is Enbridge Energy Partners (EEP). Those are both Master Limited Partnerships. EEP is yielding about 6.8%; EPD is about 5.9%.
We like these types of stocks because they pay a very good dividend. They have not missed a dividend for many, many years, if ever. In particular, EPD has been a very, very steady dividend payer for decades. It’s the bluest of the blue-chip, Master Limited Partnership names. We particularly like that.
These are both pipeline operators. The nice thing about them is they are not exposed to price changes in the price of crude oil, for example, or natural gas, which is what they transport. They’re basically collecting a fee as a toll-road operator would collect on the amount of product that’s shipped through their pipeline.
Another stock would be Government Property Trust (GOV). That’s a realty investment trust that only leases properties to government tenants. That’s a very, very steady business.
It has very, very little exposure to the economic cycle, because government entities typically come in, and they sign very long leases and are not so sensitive to economic changes as far as to whether they’re going to renew their lease year after year. The occupancy rate recently was in the high 90% range. For most REITs, that’s very, very high.
So those are a few areas that we look at for income investors looking for something a little bit more than they can currently get through traditional investments in the bond market.
