stock pickers

Aggressive investors need to be more skeptical and discriminating than conservative investors, because they take on great risk. Conservative investors mainly buy well-established companies with a history of earnings and possibly dividends, and a secure hold on a growing, or at least stable, clientele. When an investment like that runs into problems, its stock price can fall — sometimes drastically. But it will usually survive. It can then go on to prosper all over again when good times return. When something goes wrong with an aggressive investing stock pick, there is far greater risk of serious, if not total, loss....

We recently read the Yahoo news story of Ddalgi (Korean for “Strawberry”), a five-year-old parrot from Papua, New Guinea, who competed with 10 human investors in a stock-picking contest in South Korea. Strawberry’s stock market picks reportedly posted a 13.7% return. While not good enough for first, the result put her in a respectable third place. Her human competitors, on the other hand, posted an average loss of 4.6%. (The story reminded me of a Globe and Mail stock-picking contest in which I was pitted against eight other human competitors and a plastic Santa. More on that in a moment...) Stories like these are not uncommon, and are not limited to stock-picking contests. You may have heard of Maggie the Monkey, who makes yearly hockey playoff picks that routinely beat those of human analysts....

Many companies have cut their spending on information technology while they wait for the economy to start growing again. At the same time, consumers are buying less computer equipment as job losses push up the unemployment rate and erode confidence. Still, we feel that high-quality junior tech stocks have a bright long-term outlook. Despite the recession, the best of them remain profitable, and they’ll benefit further from pent-up demand as the economy recovers.

Cyberplex: An “Internet survivor”

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Gold rose from $300 an ounce at the beginning of this decade to over $1,000 in early 2008. It fell below $700 late last year before rebounding back over $1,000 earlier this year. Today, it trades around $954. We feel that gold will eventually surpass its recent highs. That’s mainly because low interest rates and government spending will spur inflation. Still, investors should use caution when investing in gold, and avoid buying gold directly, or certificates that represent an interest in gold. Unlike stocks, commodity investments like these generate no income. Instead, they come with a continuing cash drain for management, insurance and so on....

Small caps are companies with a “market cap” (the value of shares they have outstanding) below $250 million, or some other arbitrary figure. Many investors think of the “small cap group” as the place to look for aggressive investments, such as junior companies that will develop into seniors and make huge gains for investors. Some small caps will indeed turn out that way, but they’re a minority. In fact, small caps are a widely varied bunch. The top small caps are well-established giants within small but growing fields. However, many small caps are start-ups that have yet to make their first profit. Some succeed brilliantly, and these are the hot small cap stocks we aim to help you spot in our Stock Pickers Digest newsletter, but lots of others go broke. Then too, some small caps are former large-cap companies that have terminal problems. They trade as small caps on their way to zero....

Although stock markets have rebounded lately, they remain sharply lower than their 2008 highs. Likewise, the economy has shown some signs of life, but it remains in recession. In these times of market turbulence, it’s easy for investors to panic and make mistakes. Here are three common ones:

1. Overanalyzing

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Lately we’ve heard from some investors who are unhappy with some of their investments, particularly their more aggressive investing picks. They want to rebuild their portfolios, but are reluctant to sell anything at today’s lower prices. We think that’s a mistake. Obviously you want to think things through and make sure you are not holding low-quality investments, or investments that are wrong for your portfolio. Once you’ve done that, our view is that you should switch to higher quality and more appropriate investments right away. You have nothing to gain by making back any losses you may have in the same aggressive investing selections that gave you those losses. Nor are you any more likely to regain your losses by holding on to the same stocks. In fact, if your investments are genuinely poor quality (rather than simply a bad aggressive investing choice for you), there’s a risk that they will cost you even more money, the longer you hold them....

As the market has rebounded, more investors have been asking me whether they should invest in junior mines.

My answer is that you should always first ensure that your portfolio is spread out across the five main economic sectors (Manufacturing & Industry, Resources & Commodities, the Consumer sector, Finance and Utilities). However, junior mines can play a role in the smaller part of your portfolio that you devote to more aggressive investments.

Resource prices have been on the rise lately, and it’s getting easier for many junior mines to raise funds for exploration and development.

With that in mind, I’ve zeroed in on four junior mines that I think have promise in the latest issue of Stock Pickers Digest. One of these, Baffinland Iron Mines (Toronto symbol BIM), is a good example of a junior mine that is worth considering.

Five keys to profit in junior mines

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AEROPOSTALE INC. $34.67 (New York symbol ARO; SI Rating: Extra Risk) (646-485-5410; www.aeropostale.com; Shares outstanding: 67.5 million; Market cap: $2.3 billion) is a mall-based retailer of casual clothing and accessories. The company, which now has more than 900 stores, mainly targets 14- to 17-year-old women and men. Its active-oriented clothing has a reputation for high quality and low prices. In the quarter ended May 2, 2009, Aeropostale’s sales rose 21.3%, to $408 million from $336.3 million a year earlier. Earnings rose 81%, to $31.7 million, or $0.47 a share, from $17.5 million, or $0.26. Aeropostale’s strong results continued in May, when it reported that its same-store sales jumped 19% from a year earlier. If you include new stores, its total May sales jumped 30%. In contrast, its main rivals’ sales fell: Abercrombie & Fitch dropped 28%, American Eagle fell 7% and The Gap was down 6%....

I am pleased to announce the launch of our new web site, TSI Network (www.tsinetwork.ca). Building on our four newsletters (Canadian Wealth Advisor, Stock Pickers Digest, The Successful Investor and Wall Street Stock Forecaster), the site contains archives of over 2,000 articles on individual investments. I’m the host of TSI Network. Every day, Monday to Friday, I post free updates on issues that matter to you — the individual investor. TSI Network lets you access your newsletters and reports from anywhere in the world. Its search function will make finding a particular company or topic easy....