Fasten Your Seatbelt (and Buy This Stock)

In a Volatile Market, Don’t Forget to Keep the Big Picture in View.

Seat with seatbelt

Like any industry, there will always be news and hype. Choosing if and when to react to it, is up to you. Let’s touch on a few things that are going on in the markets (including some clear signs of a potential market breakout), my take on them and how I suggest reacting to them, if at all.

Oil Stocks Volatility

The big news that we can’t seem to get away from is the seemingly continuous spike and drop in the price of oil and oil stocks. My biggest thought here is to keep some perspective—even within a spike, oil prices aren’t always that high relative to their prices looking back six months or a year.

That doesn’t necessarily mean the upmoves are fakeouts, per se. But to me, if oil stocks are going to make a sustained move, they’ll likely set up first by etching some launching pads above their longer-term moving averages.

The Fed

My (very) old trading rule that used to be popular (and worked wonders up until 2000) was called “Two Tumbles and a Jump.” Popularized by Norm Fosback (his 1970s book Stock Market Logic is a classic if you’re into various market timing studies), it simply said that the second time the Federal Reserve loosened monetary policy in a row represented a buy signal—from 1913 through 2000, it happened 18 times, and the market was higher a year later 17 times, by an average of 30%!

Of course, the system hasn’t worked during the last couple of easing cycles as first the Internet Bubble burst and, second, the Great Recession took hold. Nothing is perfect in life, and certainly not in the markets!

Growth Stocks

The rotations in the market can be vicious, as exemplified with the wild action following the 2016 Presidential Election. This rotation brought many of the market’s highest fliers—especially cloud software stocks and cybersecurity stocks—back down to earth. For many, it dug a hole and threw them in it.

My overly general take on these stocks is simple: Most are broken in the intermediate-term, and given that most originally broke out back in February 2018 and rallied four- to eight-fold since then, these mega-volume breakdowns could mark some meaningful tops in a bunch of them.

That doesn’t mean none are worth hanging onto if you have a good profit, but the odds favor that most won’t be the leaders they were.

Of course, a dip in your growth stocks isn’t fun, but once the dust settles, take a look at the broad market. Often with a severe sector rotation, any number of uncertainties could cause money to slosh back and forth for a while, but the key isn’t to focus on yesterday’s leaders, but to look for some solid setups among high-potential stocks that look ready to run on any market breakout after long rests.

One Stock Worth Buying

Amidst the chaos of the market, there’s one stock worth buying. Teladoc (TDOC) is a stock we owned last year (got out around breakeven when the market began falling apart in October) and have kept an eye on ever since. Now, though, it’s perked up near resistance on big volume.

You won’t find many stories bigger than Teladoc’s: The company is the clear leader in virtual care (often called telemedicine), allowing millions of people to get medical advice (and often run-of-the-mill prescriptions) over the phone or videoconference in a variety of fields. All told, clients can access 50,000 experts across 450-plus specialties along with 7,000 clinicians—and those clients include 40% of the Fortune 500 and thousands of small businesses (including 30,000 small businesses in Canada that recently signed up) along with many public health plan users (Medicare Advantage has 20 million members and is a new opportunity for Teladoc next year) and 300 hospital health systems.

There are a lot of moving parts and costs (the bottom line is drenched in red), but it’s a simple, powerful concept that’s working. Not only are revenues cranking ahead, but the sub-metrics look great, too, with total visits expected to rise this year, while utilization continues to rise, with 40% of U.S. members accessing at least two products. The biggest recent news is of an expanded relationship with United Health, which could bring in an addition five million paid members and 10 million fee-only members, with further upside beyond that. This remains a big idea with plenty of potential if management continues to execute.

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