Today brings up a good day to talk about stocks that I avoid -- and why.
I avoid stocks that are "priced for perfection"... I've posted about this several times. Stocks that might be fantastic companies -- but they are so loved that everyone wants to be in them - which drives the share prices to levels that are
only sustainable IF * always the big IF * they can maintain spectacular growth. One teeny tiny hiccup -- and BAM! You get slammed.
Examples lately.... Apple.... slammed down $40
Amazon --- BAM! Down $30 today
These are both GREAT companies.... but their share prices have been way out in front with huge expectations of continued greatness.
I avoid LOW END retailers....(Wal Mart etc) actually I avoid anything that's main business is LOW END. Why?
Because the poor folks that shop there are just that -- poor... and they have the least amount of cushion in their budgets to absorb any offsetting cash flow disruption. Such as - a cut in hours worked - higher gasoline prices - higher heating bills etc. It just seems to take less and less "disruption" to have people slam their wallets shut - which of course - affects the sales and profit margins at these type of companies.
I like companies that pay above average dividends and whose customer base is broad based -- and companies that people MUST buy from.
When you see a down market --- you'll see that the companies that pay above average dividends will fare better. Why? Because as the share price decreases -- the dividend paid percentage increases - making them attractive relative to other income assets. It doesn't help your cost basis... if you bought at $35 and the dividend is 5% --- you're still only going to get your 5%... and you'd have a temporary paper capital loss on the books.... but your shares will most likely have gone down LESS than the market in general. So the dividend cushions on the downside... and regardless of what the current share price is - they're still sending you a check.
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