Investing Guide

My current pick is Corus Bankshares (CORS). Corus bankshare (CORS) is a holding company for Corus Bank which provides commercial real estate lending and deposit gathering. Shares of Corus Bankshares have been battered 25% YTD due to concerns of a slowing real estate market. Their concentration on an oversupplied market of condominiums and risk of default on loans is the reason for the price drop. There is a high short ratio (25.6) on this stock. This could be a good thing or bad thing depending on how you look at things. Concerns about CORS concentration in the Florida real estate market (33%) and a loan loss allowance of only 1% makes this stock risky.
The stock is currently a small cap value stock with a market capitalization of 1.14 billion. Stock yields 4.9% yield which is a lot higher than the industry average of 2.75%. Payout ratio is only 24%. The shares of these stocks are cheap.

P/E = 6.5 vs. Industry avg of 16. P/E high last 5 year is 19.95 and P/E low last 5 years is 7.46. The stock is on the low end of its historic P/E.

It also has 30% inside ownership, which is usually a good thing. It show that managers and stock holders interests are more aligned since they have a good portion of their money in the company too.

Stock has a good PEG ratio of .9, which is P/E divided by growth. With sales growth of 36%, Net Income and EPS growth of 40%, and dividend growth of 12%, this is a high growth stock selling at a really cheap price.

I feel the market is over discounting this stock. It is 20.33, right by its 52-week low of 20.04. I plan on buying some shares soon. Buy when there is maximum pessimism.

I sold Capital One (COF) for a 11% gain and Sunoco (SUN) for a 5% gain.

I sold COF and SUN because my trailing stop hit. It was set at 3% below and both stocks went down that much in 2 days. After that, Capital One (COF) went up 4% and SUN went up 2% from my sale price. Trailing stops have not worked out for me in the past because the stocks usually went down to the set price, and then went back up after I sold it. I think it is better to just pull the gun and sell the stock if I want to exit the position or just hold on to it if I still want to keep it. I’ve lost some gains because of trailing stops. I might even set trailing stops at 5% to see how that goes, but for now, I think just setting a target sell price and selling is a better idea.

Now that I sold those two stocks and JLG, I have some cash free. There have not been many good stocks that look cheap lately. A lot of stocks went up a lot in the past two months making it more difficult to find some bargains.

I’ve ran some my stock screen and these are my current buy candidates. I like Herseys (HSY), Linear Technology Corp (LLTC), Reliance Steel (RS) and W Holding Company (WHI). I will probably buy Herseys (HSY) if it drops 4% or more.

I am going to set a buy limit order ($30) for Linear Technology tomorrow. LLTC manufactures linear integrated circuits. It has a market cap of 9 billion. LLTC is currently yielding 1.96%. Its P/E ratio is at 21, which is historically on the low side for this company. LLTC’s shares have been beaten down (down 6%) on Wednesday due to lower 2nd quarter sales guidance. I think this is a good opportunity to buy a great company at good price.

Having a good sell strategy when maintaining a portfolio is very important for long term success. Without a good stock selling strategy, investors may let their sell based on their emotions and not on a rational basis.  Some investors do not want to sell when their stock is going down.  I feel the same way, even though it may be bad.  People want to break even before they exit a position even though there may be better opportunities out there than their current stock.  I also sell too soon to secure my gains.  This is called loss aversion and fear of regret.

I feel that I may have sold at the wrong time with my recent sells. My selling strategy is not really rational. I usually sell a stock when is gains 10%. Selling based on price alone is not a good reason to sell, but that is what I am doing right now.
Here is a list of all the stocks I have sold recently.

The 4th column is the gains I got on each sell totaling 56%.  If I had instead held on to those stocks, my total gains would have been 169% (5th column), which is 300% more than I would have if I did not sell.  If I add in the 35% gain I have from my new holdings, my total gain would still only be 90% compared to the 169% I would have gotten if I had just buy and hold the stocks.

I also use trailing stop on my stocks that are up.  Trailing stop is an order that will ratchet up the sell price as the price of a stock goes up. It will become a market order if the stock price drops and hits the trailing stop price.  With volatile stocks, the trailing stop will have to be large enough to weather the daily price fluctuations.  I currently set a 3% trailing stop on my Capital One (COF) stock.  So far, the stock has already dropped 2%, so if it drops 1% more, I would exit that position.

Right now, I am thinking about trying to refine my selling strategy.  It is better to only sell a stock that becomes overvalued or because of a change in its fundamentals.  My short term selling is causing me to incur short term capital gains taxed at my income rate instead of long term capital gains taxed at 15%.