By Robert Bacarella | February 16, 2018
By now, just about everybody has seen the ad campaign with the king who calls out “dilly, dilly!” whenever a subject presents him with a gift of Bud Light. The catch-phrase went viral and Anheuser-Busch is rolling out multiple variations on the theme. But it’s worth remembering the original spot, where one poor wretch makes the mistake of offering his monarch a “spiced honey-mead wine” and is promptly dispatched to the Pit of Misery.
We generally don’t get our investment philosophy from beer commercials, but the takeaway from this one bears reflection: Deviate from what is working at your own peril.
That’s especially relevant when it comes to three longtime holdings on which, notwithstanding an incredible run, we remain constructive, at least for the time being. Amazon, Apple, and Facebook may not be as novel as honey-mead wine, but the market is king. So long as they fit our investment guidelines and the market keeps saying “dilly, dilly,” to these names, so will we.
Amazon.com, Inc. (AMZN)
Operative guideline: Only sell when a stock stops going up or, worse, starts going down. Amazon (AMZN) remains a top institutional holding as a disruptive e-commerce company that is changing the retail landscape.
Although trading at new highs, the stock remains a stronghold for the following reasons:
- The company demonstrates escalating revenue growth and expanding profit margins.
- After the strong Q3 2017 earnings, both money flow and relative strength—a stock’s performance compared to the broad market—turned positive and continue to be favorable.
- There is no indication of a technical price break down, as analyst price targets continue to increase.
Future price action will determine sell/trim points for Amazon. But typically, high priced stocks going higher tend to be good buys or strongholds.
Apple, Inc. (AAPL)
Operative guideline: When insiders are no longer net buyers and analyst opinions turn more negative, it may not be time to leave, but it’s time to at least locate the exits.
We continue to hold Apple, Inc., for the following reasons:
- Apple continues to meet/exceed revenue/earnings expectations.
- The share price has consistently traded above its 50-day moving average.
- Relative strength continues to be positive, though it’s deteriorated somewhat.
- Quarterly results continue to excel: Apple’s Earnings Per Share of $3.89 and revenue of $88.3B exceeded estimates for the seventh straight quarter.
- Estimate trend factor is very bullish.
Apple has been a long-term holding but it may soon be time to trim the position as insider and outsider sentiment shows signs of turning. We initially bought the stock based on better-than-expected quarterly earnings, positive money flows and improving relative strength to the market. Despite continued positive momentum, however, Street analysts—and Apple employees, if insider trades are any indication—have turned more bearish in recent months, so we are keeping Apple on a short leash.
Operative guideline: Identifying trend changes is key to determining when to sell.
Facebook Inc. (FB) is considered a hold/trim position. The company continues to show positive momentum on several dimensions, including consistent earnings and revenue growth. But there are also a few trouble signs we are watching closely:
- Major changes to prioritizing posts on the social network could shrink advertising business; additionally, user time spent on the network is declining.
- The stock’s relative strength recently turned negative; the last time relative strength turned negative was November 2016, which preceded a 12% correction.
- Technically the stock is trading at an initial key support level, with above-average trading volume.
- The company reported Q4 EPS of $2.21 and revenue of $12.97 billion, exceeding estimates for 7 of the last 8 quarters. The estimated trend factor is currently very bullish.
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As of 12/31/17, the Monetta Fund held:
Apple, Inc. 5.55%
Amazon.com, Inc. 5.45%
Facebook, Inc. – CL A 4.57%
As of 12/31/17, the Monetta Core Growth Fund held:
Apple, Inc. 3.25%
Amazon.com, Inc. 2.41%
Facebook, Inc. – CL A 2.30%