2014 Mid-Year Call Performance And Updates

 |  Includes: BX, CCLP, CWCO, HAL, HLS, IHG, RJF, TRN, VLO
by: DAG Investments


Performance tracking for all calls to-date, and updates to some calls.

General market outlook for the remainder of the calendar year.

Under-covered stocks often present long-term opportunities.

Call Context

Before getting into the details of my calls and their performance, there are a few things to mention that are important to all of my individual calls.

Everyone reading my articles should know that I'm a long-term investor, and not the sell-the-tops type who exits every position at each short-term top to have an entirely different portfolio every few months. I rarely buy any stock unless I plan to hold it for at least a couple of years, and periodically raise my price target for the stock. So, I usually only exit a stock position if a company changes in a negative, significant and lasting way; or to raise cash to position for a change in market environment, pursue new positions or otherwise avoid the opportunity cost of waiting too long for an underperformer to turn around.

My actively-managed portfolio includes about twenty five positions. Generally, about 35-45% is large-caps, 25-35% mid-caps and 25-35% small-caps. It is also very diverse in terms of sectors and industries, as well as types of stocks and their roles. Some positions are for capital preservation (defensive stocks) others for wealth creation (growth stocks), and others for income generation (dividends). As a long-term investor with a fairly large portfolio, I manage my risk at both the individual holding level and the portfolio level. One of the ways I accomplish the latter is by holding some stocks that are intended to mitigate portfolio losses, rather than to necessarily generate gains. However, that only describes part of my risk management approach regarding individual equities. Experienced investors will likely assume this, but I'll mention for the benefit of inexperienced investors that my actively-managed equities portfolio does not represent the entirety of my investments. I believe that only owning individual stocks does not provide adequate risk management for total investable assets.

Call Tracking

First, please excuse any clumsiness in my call performance tracking. That task isn't as easy as it seems, since most of my calls are on the same stocks that I buy, but my buy dates and prices rarely match my articles, since my portfolio predates any of my SA articles by far. Also, even though I'm constantly adding to my positions, executing trades takes a few seconds, while researching and writing an article can take weeks. Plus, since I always scale into positions, and my call timelines are staggered, I have to continually track multiple prices for dozens of stocks. Frankly, that's all a bit challenging for a simpleton like me.

My calls are never to buy the stock I'm writing about at whatever price it may be on the day my article gets posted. In fact, I always specify a range in which I consider each stock buyable, and I always suggest staging into every stock position with a minimum of three separate buys, which makes each buy price less critical to the average cost basis. Thus, performance is calculated from the price that accurately reflects each specific call. The averaging/scaling/staging method of buying stocks is detailed in an old Instablog of mine, but please at least note that it is very different from dollar cost averaging, which is buying at fixed dollar amounts on a predetermined schedule regardless of share price.

Because no stock goes up in a straight line, it is deceiving to only look at call performance on the date a follow-up article like this one is posted; so I've also included peak performance for each call. Those figures are worth considering, since whether each investor decides to hold a stock beyond outsized gains in a short time is an individual decision. As I have explained in both my SA profile and an Instablog (both of which predate all of my calls on individual stocks), I also trade around most of my positions, but I do not write about trading calls, so additional trading returns are not included in the call performance tracking.

Similarly, it is also worth noting that all of my official calls (those made in SA articles, versus StockTalks, comments, etc.) are only 1-9 months old, yet are for timelines of 9-18 months. That means two things. First, the returns shown are actually much higher when annualized (i.e., a 10% return in a few months might be 30% annualized, without dividends). Second, most returns are from time frames that are not yet even close to the actual timelines of the calls.

The dates next to each company are links to the articles in which each call was made and updated. Many of my articles are now only available in SA PRO, but every article was free to all readers for a full thirty days after it was published.

Call Performance

Aceto Corporation (NASDAQ:ACET) 10/1/2013 - 2/17/2014

[+16% to-date from published call / +67% at peak from published call]

I plan to write a new article to update my ACET valuation and price target.

Anacor Pharmaceuticals (NASDAQ:ANAC) 12/12/2013 - 4/1/2014

[+10% to-date from published call / +54% at peak from published call]

In order to deter the aggression of a reader who prefers an ANAC competitor, I am dropping coverage of the company. In fact, I don't plan to publicly cover any biotech stock again, since biotech investing tends to attract people who get too emotionally attached to stocks. I apologize to those who follow ANAC.

Blackstone Group (NYSE:BX) 10/14/2013 - 1/9/2014 - 3/26/2014

[+37% to-date from published call / +38% at peak from published call]

My thesis, price target and timeline for BX remain unchanged, since my latest article about the company is fairly recent. Readers might note that in the past few days, analysts at over a half dozen major research firms have raised their price targets to almost exactly the price target I offered for BX in March.

CECO Environmental (NASDAQ:CECE) 10/3/2013 - 1/14/2014

[+5% to-date from published call / +34% at peak from published call]

I plan to write a new article to update my CECE valuation and price target.

Compressco Partners, L.P. (GSJK) 4/5/2014

[+10% to-date from published call / +30% at peak from published call]

I plan to write a new article to update my GSJK valuation and price target. In the meantime, here is some detail from my initial call, so that neither the call, nor the performance of the call, is misinterpreted:

"Having traded up to $27.25, GSJK appears very close to fairly valued. For that reason, along with the various reasons mentioned throughout, I'm not buying or recommending GSJK at this time. However, I do like the company so, if the stock comes back to the $19-21 range, I'm a buyer. I don't really expect that to happen anytime soon so I might decide to consider it in the $22-23 range."

ConAgra Foods (NYSE:CAG) 12/23/2013

[+2% to-date from published call / +2% at peak from published call]

For reasons I'll explain in a final article on CAG that I plan to write soon, I am dropping coverage of the company, though I may decide to resume coverage at some point in the future. In short, I have grown increasingly disappointed with the company's constant reaffirming, then later reducing, guidance. That doesn't mean I think CAG is a bad investment. Perhaps my call was too early.

Consolidated Water (NASDAQ:CWCO) 10/16/2013 - 1/17/2014

[-17% to-date from published call / -8% at peak from published call]

I plan to write a new article to update my CWCO valuation and price target. In the meantime, I'll say that I do not believe it is a coincidence that the worst performance of all of my calls is from the stock for which my investment thesis is of the most extreme long-term nature. Even so, I don't deny that it has just been a bad call thus far. With that said, until I'm able to write another article, the comments below from my January article offer some sense of my opinion.

"The significance of these issues should not be dismissed, especially for the near term. The courts may have to decide an outcome, that process could drag out and the stock could remain anchored as a result. That scenario is enough to scare investors, which is definitely the prevailing sentiment among the large shareholders that I've spoken with. As I commented on 11/21/2013 (when CWCO started its rally from the November low back toward current levels), "Here come the momentum traders. Investors, don't get too anxious... the risk hasn't yet abated. I bought more, but I understand the risks." It's important to understand that CWCO is not a traditional pass-through water utility and should not be looked at as a "safety" stock, as traditional utilities often are. I don't recommend CWCO for the most risk-averse investors, and certainly not as a centerpiece for small stock portfolios that are not well diversified."

Cott Corporation (NYSE:COT) 10/10/2013 - 2/20/2014

[-9% to-date from published call / +46% at peak from published call]

For reasons I'll explain in a final article on COT that I plan to write soon, I am dropping coverage of the company, though I may decide to resume coverage at some point in the future. In short, I was wrong to initially believe that the company could make significant progress in turning itself around in any less than several years. Here are some of my comments from my February article:

"I was too optimistic when I commented in my October article that "while 2013Q2 results weren't great, they did improve and the outlook indicates that 2013Q1 would be the trough." That was factually correct, but I didn't adequately consider that COT could languish in that trough for some time before turning to actual improvement. I described COT as a speculative turnaround story, but it has been slow going as national brands increased pressure on small rivals due to continued CSD market weakness... I do not suggest that investors commit new cash to COT at this time."

Daktronics (NASDAQ:DAKT) 10/6/2013

[+5% to-date from published call / +45% at peak from published call]

I previously thought this was one of my worst calls, but not the way one might expect. My call was "I just don't see anything to support an argument that the stock is significantly undervalued." That was two months before DAKT gapped up 45% in reaction to an earnings beat. However, DAKT later dropped back to the same price as when I wrote my opinion, so my call was actually correct. It was one of my first posted calls, so I hadn't yet refined my process for making public calls. I initially planned to revisit DAKT and possibly open a position, but that is no longer the case, so I have dropped coverage. That does not mean I think DAKT is necessarily a bad investment. It's just not for me at this time.

General Electric (NYSE:GE) 10/18/2013 - 1/9/2014 - 1/23/2014

[+6% to-date from published call / +14% at peak from published call]

I plan to write a new GE article fairly soon, so I'll save updates to my valuation and price target until I'm able to explain my opinions more clearly than I could in just a few sentences. In the meantime, I should also mention that along with PFE, GE is one of the best examples of the fact that the details of each specific thesis are very important to gauging the success of the call. The following excerpts from my recent PFE article explain what I mean by that.

"A portfolio needs to have what I call 'anchor positions,' and that's where a stock like PFE fits perfectly. I define anchor positions as holdings that are not really intended to take my portfolio where I want it to be (gains), but rather to prevent it from going where I don't want it go (losses), hence the term 'anchor.' I prefer to manage risk at both the individual holding level (i.e., only adding to positions when I believe that they are significantly undervalued), as well as at the portfolio level (i.e., holding some high-yield positions that may not offer as much price appreciation, but have less price depreciation risk to offset some of the downside risk in small caps and other types of stocks that do offer price appreciation)."

Halliburton (NYSE:HAL) 10/14/2013 - 1/9/2014 - 7/14/2014

[+50% to-date from published call / +50% at peak from published call]

My thesis, price target and timeline for HAL remain unchanged, since my latest article about the company is very recent. Note that in recent days, analysts at nearly a dozen research firms have raised their price targets for HAL to almost exactly the price target that I offered nearly two weeks ago, prior to earnings (as can be seen within it, posting of my HAL article was delayed several days).

HealthSouth (NYSE:HLS) 4/9/2014

[+10% to-date from published call / +11% at peak from published call]

My thesis, price target and timeline for HLS remain unchanged, since my latest article about the company is fairly recent. Here is some detail from my original call, so that neither the call, nor the performance of the call, is misinterpreted:

"I'm just sharing research on a stock I wish I bought during what was the best dip so far this year (HLS was $30 Feb. 4-5). I think the long-term trajectory of HLS shares will continue upward, but I'm not prepared to buy at $35 so my current plan is to continue watching closely for similar buyable dips."

InterContinental Hotels (NYSE:IHG) 11/25/2013 - 1/9/2014 - 2/24/2014

[+28% to-date from published call / +36% at peak from published call]

Within the next week, I plan to submit a new article to update to my valuation and price target for IHG. A couple of new factors should be considered, so I'll hold off on offering opinions until I'm able to explain them more clearly than I could in a few sentences. Readers might note that starting in February/March, about a half dozen analysts at major research firms began raising their target prices to almost exactly the price target I offered for IHG last November.

Kroger (NYSE:KR) 10/18/2013 - 12/8/2013 (1/29/2014 supplement)

[+36% to-date from published call / +36% at peak from published call]

I plan to write a new article to update my KR valuation and price target.

Mueller Water Products (NYSE:MWA) 11/13/2013 - 2/10/2014

[+3% to-date from published call / +21% at peak from published call]

I plan to write a new article to update my MWA valuation and price target.

Manitowoc Company (NYSE:MTW) 9/27/2013 - 1/10/2014

[+67% to-date from published call / +74% at peak from published call]

I plan to write a new article to update my MTW valuation and price target.

Perficient (NASDAQ:PRFT) 12/20/2013

[00% to-date from published call / +5% at peak from published call]

For reasons I'll explain in a final article on PRFT that I plan to write soon, I am dropping coverage of the company. In short, I now think I should've stuck to my long-established rule that "I don't do tech stocks at all anymore." That doesn't mean PRFT is a bad investment. It just does not suit my strategy.

Pfizer (NYSE:PFE) 10/14/2013 - 1/9/2014 - 6/23/2014

[+5% to-date from published call / +12% at peak from published call]

Along with GE, PFE is another of the best examples of the fact that the details of each specific call are very important to gauging the success of the call (see comments above). My PFE thesis, price target and timeline remain unchanged, since my latest article about the company is very recent.

Raymond James Financial (NYSE:RJF) 1/29/2014 - 7/9/2014

[+3% to-date from published call / +14% at peak from published call]

My thesis, price target and timeline for RJF remain unchanged, since my latest article about the company is very recent. No update is necessary at this time.

Standex International (NYSE:SXI) 1/2/2014 - 6/27/2014

[+23% to-date from published call / +34% at peak from published call]

My thesis, price target and timeline for SXI remain unchanged, since my latest article about the company is very recent. No update is necessary at this time.

Trinity Industries (NYSE:TRN) 10/18/2013 - 1/9/2014 - 6/19/2014

[+96% to-date from published call / +96% at peak from published call]

This may seem odd, since my latest TRN article was just a month ago, but as of this writing, I'm again raising my 9-12 month TRN price target to $49. I've been very conservative with my TRN price targets all along, because any stock that appreciates so fast always makes me nervous. However, the numbers for TRN have also risen very fast and the company has made some great moves lately, so it doesn't seem fair to limit my price targets on my own skittishness. Therefore, I've simply lifted my target from the bottom of the range from my valuation calculations to the top of that range. TRN has such strong tailwinds that I won't be surprised if my new target is still too conservative. My thesis remains unchanged, and here is part of my mid-June valuation rationale:

"The TRN trailing and forward P/E are both in-line with historical ranges that seem to top out at around 14x-15x, which happens to be the low end of where competitor P/E ratios are already. Thus, the question becomes whether current EPS estimates are close to reality or well below as they have been for a couple of years now. With a 14x P/E applied to the trailing-twelve EPS of $6.61, the resulting share price is $92.54*. With a 14x P/E applied to the next-year EPS estimate, the resulting share price is $96.74*. If the EPS projections are only slightly understated, the share price results are very similar with only 13x P/E ratios. Thus, the reasonable P/E ratios for where we are in the economic cycle are another basis for my 9-12 month $93* target." [*prices prior to 2-for-1 split]

Valero (NYSE:VLO) 10/14/2013 - 1/9/2014 - 3/21/2014

[+23% to-date from published call / +49% at peak from published call]

Even though my most recent article about VLO pre-dates the recent news that is causing weakness for all refiners; my VLO thesis, price target and timeline remain unchanged, since my opinions are always from a long-term perspective and I tend to keep my opinions fairly conservative. I would still like to factor the new developments into my thesis, so I'll write a new article at some point, but probably not until there is more clarity on the condensate exports issue. Even though my comments below are from March and pre-date the recent news, they have still proven accurate and may be worth considering.

"I'm willing to average up in the $46-48 range... For now, I'm retaining my 9-12 month $59 price target... My comment that I wouldn't buy VLO at $55 does not imply that I don't think the stock can go higher... that would be in opposition to everything I said in the article, including my price target. I just don't believe VLO can go up in a straight line so I only buy on dips, not at what could be a short-term top of a run from $48 to $55 that occurred in one week. VLO momentum seems to have stalled at that point and the chart looks like it may be about make a bearish MACD crossover (a short-term measure). I am still bullish on VLO overall... In almost any circumstance, I probably wouldn't buy above $50 right now."

Click to enlargeSource: Seeking Alpha

Coverage Changes

There are some stocks that I own, and have occasionally commented on, that are not included here, since I've not offered calls to track: Aetna (NYSE:AET), Aqua America (NYSE:WTR), Chevron (NYSE:CVX), Duke Energy (NYSE:DUK), HCI Group (NYSE:HCI), Magna International (NYSE:MGA), Omega Healthcare Investors (NYSE:OHI), SunPower (NASDAQ:SPWR) and Williams Companies (NYSE:WMB). That doesn't at all mean those stocks are any less worthy than the ones I've written about. In fact, that list includes many of my top winners.

I simply don't have the time to write about every stock I like, especially since I prefer to offer ongoing coverage of the stocks that I do write about, and I also like to leave some room to cover new ideas. That is among the main reasons I'm dropping coverage of a few stocks that I've previously written about and plan to add coverage of some of the aforementioned companies in the future.

The bottom line is that I've made very specific calls on twenty-two stocks, and a few have not gone my way (yet, perhaps). That seems a pretty good batting average. In fact, if you read the details of each call, you will find that even the few that have turned out to be less than stellar still resulted in either a small gain or a negligible loss. For example, selling COT when I suggested doing so would've resulted in a small profit, rather than the to-date loss shown above. Even without such nuances factored in, as the chart shows, a portfolio built from all twenty-two calls outperformed all of the indexes by a decent margin.

As far as my own primary portfolio, I've only added 1-2 new positions in 2014 since most of my buys this year have been adding to existing holdings. In fact, I believe I've only opened one new position this year, but I said 1-2 in case I forgot about one. Forgetting about a new holding may sound strange, but it's easy to do when managing dozens of holdings in a dozen portfolios. One new position this year is definitely SunPower, which I recall because I opened my position just a few weeks ago. I believe that's my only new position this year, since I missed my chances to buy HLS or GSJK at my prices (so far, at least).

Outlook Context

To put my opinions for the second half of 2014 in context, I'll look back at the first half of 2014 with a couple of my starting-point opinions, then I'll include some forward-looking supporting opinions from a few far wiser experts.

In my January 9 article 2013 Performance & 2014 Updates, one comment that summarized my 2014 opinion more succinctly than most was:

"I expect 2014 to hold more stock-specific buyable dips as some investors get speculative in search of outsized returns and sell out top performers to take profits and redirect cash to speculatives. Overall, I think 2014 will be another very positive year, albeit more of a slow and steady climb with more and longer periods of sideways trading."

A month later, at the trough of the best market-wide dip of the year, investors were panicking. I tried to help reassure the relatively small segment that I can reach, as I opined in my February 5 article, Corrections Come, Corrections Go:

"Despite all of the possible negatives that I've touched on that could send the market even lower, my opinion of what to expect for 2014 as a whole has not changed and remains positive. I don't subscribe to the idea that the entire year will be bad because January was not good. Although the "January Barometer" states that the January market direction foretells market direction for the year, and that does have a somewhat accurate record, perhaps this January is an exception for the reasons touched on toward the end of my prior article [from January 9, as linked above]."

Since I'm still convinced that we're in a secular bull market, as I have been for a couple years, those overarching opinions haven't changed. There are just a couple adjustments to the specific areas I'm focusing on going forward, as I'll detail in the Market Outlook section next. First, I'll set the stage.

In late 2013, the following statements were made by one of the investment strategists whose reports I read on a regular basis. Mr. Saut had actually been pointing out the common error in marking the start of the secular bull market for at least a year prior, but this is the only exact quote I could find:

"I read that, at 58 months, this rally is too long and can't continue. But, they are measuring it from the March 2009 "nominal low." We don't measure the 1982 to 2000 secular bull market from its "nominal low" of December 1974, but rather from its "valuation low" of August 1982. If we measure this bull move from its "valuation low" of October 2011, the current rally is 26 months long, not 58 months."

-- Jeffrey Saut, chief investment strategist, Raymond James

In other words, we're only halfway into what could be a five-year bullish rally within a secular bull market. Not only did the first bull rally in the prior secular bull market last five years, but the bull market went eighteen years. With the often mis-stated historical measures put in context, the current bull rally could continue another couple of years before hitting five years. More important, a secular bull market could continue for another fifteen years or more.

And, despite the common sentiment, there really is no reason to believe that the inevitable end of quantitative easing will bring the walls crashing down:

"While it's a common belief that the Fed QE since 2008 is unprecedented, in fact it isn't. From the mid-1940s to the early 1950s, the Fed capped bond yields by buying most of, if not all, the Treasury supply. That's QE in almost everything but name... Currently, with the Fed presumably ending QE, there's a belief among some investors that the market is a house of cards that will collapse as soon as the Fed stops printing money. However, the 1950s analogue seems to disprove that theory. Although interest rates did start to rise from the early 1950s through the late 1970s, the stock market went up - a lot - for the first 20 years of that cycle. From the 1949 launch to the 1968 secular peak, the S&P 500 racked up an annualized return of 16%. As in the 1950s and 1960s, the secular bull market of the 1980s and 1990s ran close to two decades. It also delivered similar above-average returns, of about 20% per year."

-- Jurrien Timmer, director of Global Macro Research, Fidelity

In fact, there is a fair amount of reason to believe that the inevitable end of quantitative easing does not mean that it will "end badly" for the market:

The last time the Fed's reserves were this high relative to GDP was in the 1940s, when the Fed bought bonds to help finance WWII debt. It took two decades to bring the balance sheet back to pre-war levels relative to the economy size, but the impact on the real economy wasn't damaging. In fact, the 1950s were a time of relatively low inflation and moderate growth. Interest rates moved up gradually but didn't reach pre-war levels for 18 years from the 1941 trough. As we examined the history of QE in the U.S. and abroad, we couldn't find any precedent to suggest that the size of a central bank's holdings inevitably lead to inflation or sharply higher interest rates. Investors afraid of dire consequences may want to consider an alternative scenario: the potential for interest rates to move up slowly over a prolonged period. Over a multi-year period of gradually rising rates, investors who remain sidelined in short-term, low-yielding securities may miss out on generating and compounding income, reducing cumulative total returns. Investors may want to consider extending the duration of their portfolios as interest rates move up."

-- Kathy A. Jones, fixed income strategist, Charles Schwab & Co.

Perhaps it will "end badly" for the market, but my point is that there's good reason to believe that at least won't happen within the time frame this article is concerned with -- primarily, the remainder of this calendar year, although I believe the market will do well through at least 2015 as well.

And, for those of you who despise all traditional Wall Street intelligentsia, I offer you the following nuggets of wisdom from the anything-but-traditional and ever-colorful "Reformed Broker" (a.k.a., Joshua M. Brown):

"So, what can we learn from looking at these inflection points? Well, you can remind the next bubble-screamer you come across of the following three takeaways: a) US stocks are nowhere near as overvalued now on an absolute basis as they were in 2000. b) US stocks are nowhere near as overvalued now on a relative basis (think bond yields) as they were in 2007. Plus, we're actually getting more in today's dividend yield versus back then. c) during the prior two tops, stocks got cut in half from both absurd valuation levels (2000) and from reasonable valuation levels (2007) -- so valuation levels alone are not ever going to be your tell."

Market Outlook

Mr. Brown's "bubble-screamers" term relates to my next point, which is that Janet Yellen's comments last week imply that the Fed is a little too focused on the stock market, instead of the economy and jobs. That could be a problem, but it is also furthering a potential opportunity that had already been brewing.

What I mean is that, according to the Federal Reserve, there is apparently a company called "Small Caps" that is overvalued. I have not seen the balance sheet or earnings from this company called Small Caps, so I have no way to know whether it is indeed overvalued, but I have two questions for the Board:

  1. What does your opinion of specific stock values have to do with the Federal Reserve's statutory mandate "to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates?"
  2. Since you're now stock analysts, what are your investment theses and price targets for all of the various stocks mentioned in this article?

Please forgive my not-so-subtle sarcasm. Despite how it may sound, I actually have nothing at all against Ms. Yellen or the Fed Board. In fact, I understand the points and somewhat agree. There is a reason why you will never see me write an article about Twitter (NYSE:TWTR). However, I also believe the Fed failed to consider that both the reporting media and investors collectively have a very strong tendency toward selective hearing/reading and have clearly skipped the "smaller firms in the social media and biotechnology industries" parts of the comments in the Fed report [pdf] to only hear/read "small caps."

As investors who invest in stocks that trade on a market versus investing in a market of stocks, we must remember that we're a minority. The vast majority of investors exclusively invest through funds, never own individual stocks and know nothing about the value of any company in any of those funds. In fact, many don't even know what companies are in their funds. Therefore, when all small-caps are randomly sold at lows, as has been happening for months, the good ones that are already undervalued are sold off with the rest.

This is an opportunity that was already brewing and, with a little help from our Fed, is near-ripe for picking by long-term investors who build holdings over time. Small caps had already been beaten down with the entire Russell 2000, and the Fed gave them a collective swift kick while they were down. Even prior to the Fed kick, I planned to shift my focus back to small- and mid-cap stocks after my next article, but I now plan to hasten that pivot. I included mid-caps because a large portion of investors makes no distinctions between small-caps and mid-caps, so the common view is mega-caps, large-caps and everything else-caps. As examples of the resulting opportunities, the two top-performing stocks in the above list are both mid-cap companies (MTW and TRN).

I said that I consider the opportunities "near"-ripe for picking because, if we happen to get a market-wide correction before small-caps eventually recover, that would be the ideal culmination of factors to create some real bargains. As I opined in my February 5 article Corrections Come, Corrections Go article:

"It's important to know that all small-cap growth stocks tend to get hit in "risk-off" scenarios. That does not mean that a stock is broken so, if you "know what you own, and why you own it," don't get spooked too easily and sell at bottoms, instead of buy at bottoms."

I'm far from among those who have been predicting a market-wide correction every day since 2009. However, for only the second time in two years, I now think a correction is becoming more likely in the coming months. I believe any correction that may commence will be fairly mild (<10%), but I doubt that the few pullbacks we've seen so far in 2014 are all that we'll get this year. At the same time, I also believe that any correction we may get will be brief, since I believe it will still be within the broader context of a secular bull market that I believe will continue for at least another year or three. Thus, my opinion is that staging into positions is as important as always right now, if not more.

In fact, I'll clarify that I'm no longer just referring to the small- and mid-cap opportunities. As detailed in a couple of my prior articles, when I discussed the three sentiment stages of a secular bull market, my opinion is that 2009-2012 were ideal years for setting a strong portfolio foundation, and the subsequent few years are likely to be more suitable for building upon that foundation. In other words, the early years after a severe economic downturn are the time to decide which new positions we want for the long term, since most all stocks are at fire sale prices at the same times, and we have our pick of the litter, so to speak. And, as I opined in my Performance And Updates article in January:

"Now, 2014 is for building on that strong foundation. So, my focus for 2014 is growing the size of my best new positions, while opening new positions very selectively and resisting temptation to get too speculative. Related to that last part, I expect 2014 to include more buyable dips as some investors get speculative and sell out of top performers to redirect cash to speculative stocks in search of outsized returns."

In other words, it is not by mistake that an investor of my type opened about a dozen new positions between 2012 and 2013, yet only one or two in 2014, and remains focused on adding to existing long-term holdings.

There are always pockets of opportunity that result from various short-term factors, so I try to write about them as I see them. For example, as mentioned in my recent HAL article, many industries were truly and significantly impacted by the extreme winter weather in the first quarter and should get a boost from pent-up demand. Similarly, as explained in my recent RJF article, the company had a relatively weak report last quarter for entirely different reasons. In more general terms, the third quarter should be the test as to whether the strength of this earnings season can be built upon for the strong end to 2014 I expect.

As a final note, I'll reiterate my experience that most of the best opportunities are with sparsely covered small- and mid-cap companies that most investors have never even heard of. So, whether through my articles or those of other SA contributors, I recommend that all investors expand their horizons and at least occasionally read about under-covered stocks, since that is very often where the real money-making opportunities are found. On that note, perhaps consider looking at my recent Standex International article. I have many other articles on under-the-radar companies that've been very successful calls, but that's probably the only one still within the free-access thirty days.

Thanks for reading. Perhaps consider clicking the "Follow" button at the top of the page so that you can see when I post new articles, since most of them are only free for the first thirty days. I apologize in advance that I can no longer spend time on comments beyond the opinions that I offer in my articles. As always, every reader is free to dismiss any or all of my opinions. Or, as SA puts it, "Read. Decide. Invest." Best of luck. I wrote this article 7/1-7/23.

Disclosure: The author is long ACET, AET, ANAC, BX, CECE, CVX, CWCO, DUK, GE, HCI, IHG, KR, MGA, MTW, MWA, PFE, RJF, SPWR, TRN, VLO, WTR, WMB. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am long ACET, AET, ANAC, BX, CECE, CVX, CWCO, DUK, GE, HCI, IHG, KR, MGA, MTW, MWA, PFE, RJF, SPWR, TRN, VLO, WTR and WMB. I may buy or sell shares at any time, though I currently have no immediate plans to buy or sell.