I think that the rotational nature of the market, with various industry groups (or individual stocks) coming in and out of favor, offers great opportunities to make $$$ over the long haul. The key ingredient is to buy good stocks, that are down for no strong fundamental reason, and then hold them until they are in favor once again.
My own personal goal is for my portfolio of funds and stocks to grow at a 15% annual rate. My criteria for stock selection is to pick stocks that I feel will double in value within 3 years; that provides a nice margin for error, because doubling in 3 years is a lot fast than 15% growth. IMHO CLE is one of these stocks, and I picked some up a couple days ago at 12 7/8.
I do not believe there is anything fundamentally "wrong" with CLE. Earnings growth appears good, the company's marketing strategy appears sound [to me], there is cash on hand and no long term debt, and a buy back program is in effect. But it is clearly out of favor.
During the next three years I think CLE will hit it's old high of $26, therby doubling in price. So I bought it and I am comfortable holding it, reinvestings it's dividends as I wait for it to climb.
I have used this same approach to stock buying over the years and it works. But there are [at least] three risks:
1. The fundamentals of a company can change quite a bit over a three year time frame, particularly with small companies like CLE, and if they do, the carefully laid plans can be quickly blown away.
2. Special situations within a company can change. In the case of CLE I think the special situation with the CEO could be one of these. He is 79 years old. He has sold stock in the past because, well, he deserves to. But what will happen when he leaves? What will happen if he continues to sell stock?
3. Just because a stock is down and out of favor does not mean it has hit bottom. If you read back over Dan Zimmerman's technical analysis you will see that he thinks the stock will head down again in the near term. I've kept track of some of Dan's TAs and he is very good at this stuff; so Dan, you are probably right.
Although I am sure to feel bad about my purchase if I look at this stock in three weeks time at $11.50 - $12.50, it is my destination of 36 months ahead that I try to focus on.
I really try to envision the process as an obligation to be at a certain place at a certain time. Just as it does not matter where I wander during the day if I am obligated to be at a certain place at five o'clock, the short term ups and downs of the stock price do not matter too much if it arrives at my "destination price" of $26 on or before my deadline of 36 months down the road.
In all honesty I should point out that I originally bought CLE because I thought I could make a quick 10% in a week. That plan did not work out. But I would not have picked up the stock if it did not meet my 3 year doubling time criteia.
These are just some things to think about. I would never recommend that someone buy a particular stock. And I never follow the advice of brokers. Every investor needs to do his or her own research and follow their own particular path to [hopefully] profit.
Mike
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