This Stock Aces All Five of My Tests (Plus Nine More)

0 | By Michael A. Robinson

Back in June, I showed you a stock that follows all five “rules” of Your Tech Wealth Blueprint.

Since then, Wall Street’s biggest and baddest have lined up to take pot shots at this unconventional tech play.

However, it’s up nearly 10% year to date, while the broader market is seeing nothing but losses.

Moreover, as one of you pointed out to me, this stock also performs highly on another “score” that many investors use to determine the strength of a firm’s finances.

Today, I’ll introduce you to that reader – and answer all of your best questions about the tech sector and what’s going on in the stock market.

But first, let’s see who exactly this stock “prodigy” is…

You Ask… I Answer

Let’s start with our June 26 chat about why I believe Walt Disney Co. (NYSE: DIS) is such a good foundational play for tech investors.

Q: I’ve been an investor in Disney for some years; it has a great, solid price chart and performs well on the Piotroski Score. This article puts some meat on the bones and shows just why it has done so well, and importantly why it’s worth holding onto in the future.

A: Thanks for sharing your observation, Robert. Much appreciated. And I really like the fact that you reference Joseph Piotroski, a giant among the disciples of value investing guru Benjamin Graham.

Piotroski (1894-1976) was an accounting professor at the University of Chicago. He wanted to figure out why so many “value” companies were often troubled firms.

So, he set up a rigorous nine-step checklist to help investors keep from landing in what’s known as a “value trap” – stocks that look good on paper but that go nowhere for years.

Though I don’t subscribe to Piotroki’s precise approach myself, there are several concepts of both Graham and Piotroski embedded in the five-part Tech Wealth Blueprint I use here at Strategic Tech Investor to evaluate the quality of tech stocks. I ran Disney through all five filters, and it scored very well.

Back on July 1, I wrote to you about how to play the commercial aerospace boom. Perhaps because the entire aviation industry in one way or another runs on petroleum, I caught an energy-related question.

Q: Can you please give us your take on U.S. Silica Holdings Inc. (NYSE: SLCA). You had recommended this company before oil began its slide down to where it is now. Thanks a million.

A: Good memory, Kevin. I have to say I’m frustrated with the sudden and unexpected rout in the energy sector. Honestly, I don’t know of a single analyst who predicted anything like oil falling from more than $100 to below $40 a barrel in just a few months.

I’m convinced that oil and energy-related stocks as a group will come back, and that we are somewhere near the bottom. However, no one knows when exactly when that rebound will occur.

If you’re like me and you still like U.S. Silica for the long haul – we were able to make peak gains of 173.5% on it, after all – I would proceed with caution. You could start by buying a very small amount in a long-term account, like an IRA or 401(k), and building that patiently over time.

And that holds true for the entire resource sector, whether that’s oil, gas, silver, gold or rare earths. There are some screaming bargains out there for folks who can take the long view.

“Houyhnhnm” wrote to make a point about my Aug. 7 column in which I talked about the advantages of investing in the Market Vectors Pharmaceutical ETF (NYSE: PPH)

Q: You said, “Buying an S&P 500 index fund would run you around $200. That’s more than double the cost for less than half the performance.”

I don‘t understand this harping about share price. What does it matter if an ETF or stock costs $50, $71 or $200? The days of paying a penalty for trading odd lots are long gone.

A: I couldn’t agree more with the sentiment behind this comment. I regularly remind investors not to get hung up on a stock’s “sticker price.”

In the end, it doesn’t matter what the stock costs. What’s important is its return. Let’s say you can only afford two shares of a stock that costs $500. If it goes up by 20%, you make the same amount of money as you would buying 20 shares of a $25 stock.

Having said that, you also have to look at the relative price difference. In the case of PPH, it yielded profits 22 times morethan the Standard & Poor’s 500 Index in the period. Compared with PPH, you paid a premium to own the broad market and got little in return.

My Aug. 14 column on startup CEOs tapping into Silicon Valley’s venture capital community drew a question from an immigrant to the United States who is an inventor.

Q: I am thinking of turning some of my invention projects, such as making coal from grass, natural insecticide, etc., into a business. Is there any possibility that I can get investment money from venture capital firms? How do I get started?
-Jorge S.

A: Let me start by applauding your entrepreneur spirit, Jorge. It’s what’s makes the U.S. the leader in global innovation and a prime reason why Silicon Valley continues to create so much wealth for so many investors.

However, at this point you don’t sound quite ready to start knocking on VC doors. I have worked with several VC firms and quite a few startups, and the entrepreneurs that get funding have several things going for them.

The first thing I would want to see from a startup is a clear focus. In other words, you need to narrow the list down to one high-tech invention and nurture that like it was a baby that needs constant care and feeding. Without that approach, you can’t succeed in the Valley – there’s just too much competition.

After that, I would like to see at least what we call a “pitch deck.” That’s a short overview of your technology, market potential, unique business advantage and your management team.

It’s easy to put one together using slide-show software that looks very professional. Once you have all that together, you can start seeking out seed money from angel investors before formally chasing down VC funding. I hope that helps, Jorge, and wish you the greatest success.

Finally, my Aug. 25 column on the importance of remaining focused and disciplined while the markets are in turmoil drew this response from Nasir.

Q: I’m a new investor. I like your Portfolio Pumpers. I’m not familiar with all the technical trading terms yet, however. I am printing your article for reference. How lucky to have such an experienced man on mission for me.

A: I’m glad to be of help. My entire mission in life is to use my 30 years of experience in tech investing and Silicon Valley to help people vastly improve their net worth.

Twice a week, I share tips, strategies, advice and detailed looks at specific investments that can crush the market.

I often remind investors that the “Road to wealth is paved by tech.” So, I hope you’ll all continue this journey with me by checking back here often.

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