TatroCapital Blog

Preparing the Shopping List

Whether it was political scandal an overzealous fed, another European blowup or a North Korean missile, a real pullback was inevitable. US markets haven’t seen a real drop in over a year since those pesky Brits decided to vote out of the EU. Rather than jumping full burlap into the bear camp, take a moment to remember that even the healthiest of bull markets have corrections and more often than not those corrections offer opportunity for those who are prepared. Rather than a supply list for end of times, consider a shopping list to pick up stock bargains. The following are a few of my favorites.

JP Morgan (JPM) is one of the strongest financial stocks both technically and fundamentally. Valuation gurus will argue that one may find better intrinsic value from something like Citigroup trading around .8x book however I prefer to own a company who is growing top and bottom line. Hitting 2018 projections, JPM is estimated to grow EPS by 13% and the stock is currently trading around 11x 2018 estimates. In the event this political scandal doesn’t result in the fall of mankind, odds favor the banking system continuing to improve their revenue with an improving economy. Should this stock get hit from these levels back towards the low 80’s or even mid 70’s, it would be a great buying opportunity and one I would definitely take advantage of myself. In fact, as long as JPM remains above the mid-50’s, the nearly 20-year breakout remains in tact. Which of course brings me to the technical setup below. As you can see this stock is just now breaking out of a multi-decade…DECADE…lateral trend. Any pullback after this break is not only healthy but an opportunity.

Click to enlarge

 

Goldman Sachs (GS)- Much like JPM, GS is a financial institution seeing strong growth and not yet pricing in any major shift in the economy. Analysts estimate in 2018 GS will earn almost $21 per share. Up from 18.87 should they hit 2017 remaining estimates, this represents over 11% growth, while trading right around this 11x 2018 numbers. GS has already begun to pullback from a high of 255, down a quick $30.00 after a rare earnings miss last quarter. Should the shares get hit any further on general market weakness the stock is a buy for a return to new highs. From a technical perspective, much like JPM, we’re seeing a multi-year breakout that should not go quietly into the night. The stock has already used the trend line as a pivot in the last few weeks and any return to this level is a buy.

Click to enlarge

 

Cisco (CSCO) Shifting gears from the financial world we move over to stodgy tech. While all eyes have been focused on the big FANG, Chambers and crew have been quietly advancing to decade highs while continuing to pay a 3.4% dividend while investors wait. Cisco has been investing heavily in new business so EPS growth will slow significantly in 2018. I like to take more of a Buffet approach here as the company has increased book value from 2010 by 68% (7.83 / sh – 13.17/ sh) while the company stock remains in the same place it has been since the tech bubble burst. This cash cow is quietly increasing in intrinsic value while investors chase speculative growth. Any dip here is a buy in a forgotten tech that should be trading much higher in the coming years.

Click to enlarge

Speculative
TSLA I would be remiss not to mention a pure technical / speculative play that also may offer a dip buying opportunity. There is no arguing fundamentals here as there are none. Anyone investing in this company is 100% purely speculating that Elon has what it takes to turn this cool auto maker into a full-blown energy conglomerate. While many will shun this stock because it simply does not make a profit, I have been in this game long enough to know there is more to stock appreciation than bottom line earnings ie Amazon. From a technical perspective this stock has only recently broken out of a 4-year consolidation pattern. What’s interesting about this is it is only the 2nd consolidation phase the stock has seen since its IPO back in 2010. Technicians will relay that this is not yet a late stage base but rather a prudent point of entry for a continued move higher. In fact, the longer the base the higher in space as famed technician Louise Yamada likes to say, which means that this chart breaking from $300 may be projecting a triple from here. Yup, that’s a crisp $1,000 per share. On a pullback to $300 this stock is a buy in my opinion and traders can use a stop at $200 to protect from a complete blowup.

 

In full disclosure I own all stocks mentioned above so there is no question I’m talking my book here but rather than predict doom and gloom my hope is to keep you open minded with a shopping list for opportunistic buys when others are running for the hills.