5 Stocks With An Average Of 30% Gains - But When Is The Time To Sell?

 |  Includes: AAPL, BAC, CSCO, MSFT, SIRI
by: Richard Saintvilus

One of the best things about investing in the stock market is that every so often, investors get to learn a little bit more about themselves and the approaches taken towards meeting certain market objectives. For some, there is the realization that what we think we know doesn't always produce our desired results. For others, there is the discovery of qualities that we didn't realize we had. These qualities often manifest themselves when faced with certain decisions - we know these as buying and selling.

For me, what I learned on Tuesday was that, sometimes, the best decisions that I've ever made were the ones where I remained undecided. Said another way, sometimes, it is best to be tricked into being patient.

Tuesday afternoon, I wrote an article discussing several stocks that I thought (for me) were running out of time. Not in the literal sense of course, but rather, from the standpoint that these stocks had climbed to a level where I felt a reversal might be imminent. I called it, "The anxiety of when." In this case, I began to struggle with "when to sell."

The table below should give you a good idea of just how much anxiety I've been dealing with. But make no mistake, this is a problem that I love having and nor should it be confused with any type of complaint. The fact is, I have done so well in this particular portfolio, I'm beginning to remember that "Murphy's Law" still exists.



Cost Basis

Current Price

Percentage Gain

Sirius XM















Bank of America










Click to enlarge

Before we continue, let me first clarify that except for Bank of America, I have invested in each of the other six companies for a minimum of 5 years. So these gains in relation to the cost basis are not exactly precise and more an indication of where I have recently established new positions to add to what I have already held. So in reality, over a longer term period when factoring in my gains and losses from the position sold for a litany of reasons, the percentage gains are really only in the high single digits. However, in terms of the new positions, I am now struggling with when it the best time to sell.

Reasons for the struggle

One of these reasons had to do with the fact that the Fed met on Tuesday and its rate-setting panel will release its policy statement on Wednesday which will likely give investors an indication of "timing" and appropriate courses of action not only for this remaining quarter, but possibly the next two as well. As these decisions are being made, I realize that it could have a potential adverse effect on this rally that we are now seeing known as the "January effect." With an average of 30 percent gain from the small positions above, I thought it made little (if any) sense at all to risk it. But it all changed by Tuesday afternoon upon the release of Apple's (NASDAQ:AAPL) highly anticipated earnings announcement.

Apple's "not so surprising" surprise

With the entire market on pins and needles, Apple reported arguably the best quarter of all time for a company its size. For the quarter ended Dec. 31, Apple reported net income of $13.1 billion, or $13.87 per share, compared with net income of $6 billion or $6.43 per share for the same period the previous year. The company's iPhone sales come in at more than 37 million and profit more than doubled for its latest quarter, surging past analysts' estimates. Revenue jumped 73% to $46.3 billion.

Analysts were expecting earnings of $10.08 per share on revenue of $38.85 billion for the quarter, according to consensus forecasts from Thomson Reuters. The company said it shipped 37.04 million iPhones for the quarter - a number that surpassed the average analysts' forecast for just more than 30 million units sold. In a call with analysts, Apple CEO Tim Cook said the company made a "very bold bet" with its manufacturing targets for the iPhone 4S, but still came up short on supply amid heavy demand for the device.

As pleased as I was with the report, I have to admit it was still a surprise even though it was a foregone conclusion that the company would produce as it did. For me, I was relieved that I did not pull the trigger on not only a sell order for Apple's shares, but for the other stocks in the portfolio as Apple's results can potentially have that "spill-over" effect.

Sirius XM - Target $2.50

On the day that Apple reported such stellar numbers, Sirius XM announced that it will report is Q4 full year 2011 earnings announcement on February 9. As with Apple, the company's stock has been in a waiting period ever since its recent surge from $1.78. I am eagerly anticipating how Sirius guides for the coming year. Consensus subscriber estimates stands at 1.5 million subscriber additions and if this is what they announce, it will be difficult to expect the stock not to step backwards. But will Apple's stellar numbers be enough to spill some optimism towards Sirius' way?

Bank of America - Target $10

The same can be said for my other Bank of America. Its stock has surged 20 percent. Though I have a target of $10, it is difficult to not consider locking in some profits. What will Apple's earnings effect have on its momentum if Apple can sustain this market rally? But regardless, (of late) the bank is doing well on its own merit. Its full year earnings arrived at $1.45 billion compared to a prior loss of $2.24 billion in 2010. During the quarter, revenue rose 11% to $25.1 billion with earnings coming in-line with analyst estimates at $0.15 per share. These numbers come only one year after reporting a loss of $1.2 billion last year.

Cisco - Target $30

I had already priced Cisco's stock at $30, but Apple's spill-over effect can't hurt. While this sentiment has a lot to do with the sudden resurgence in the technology sector overall, the true source of the feeling has to do with how Cisco has positioned itself well to capitalize on what is now seen as increasing technology expenditures. This is in stark contrast from its previous status of last year when it allowed lesser competition such as Hewlett-Packard (NYSE:HPQ) to encroach on its market share because it was so out of focus. However, focus is one thing the company is now demonstrating to have by its last earnings announcement.

For Cisco, I continue to think that the downside risk is very limited with respect to the cash and other strong fundamentals of the company. Couple this with the fact that technology is once again a safe place to invest as indicated by the early robust performances of the S&P 500's tech sector. If you want to break in down a bit further, in networking it continues to be Cisco and everyone else. It is clear that this tech giant has been both resurrected and rejuvenated and now is setting its sights on $30.

Microsoft - Target $35

How is this for a bit of irony? I'm hoping my shares in Apple spills over to rival Microsoft. For Microsoft, it's been A Tale of Two Cities; actually, A Tale of Two Weeks. In one week, it issued a warning to analysts about slowing PC sales due to last year's floods in Thailand, and then the company (the following week) reported earnings that not only topped analysts' estimates, but did so by a respectable margin. The question that many investors continue to deal with is, where is the company heading next and does it have the ability to execute to compete with the likes of Apple and Google (NASDAQ:GOOG)? Probably - but not very likely.

Microsoft posted fiscal second quarter earnings excluding items of 78 cents per share, up from 77 cents in the year-earlier period. Net income was $6.62 billion, down slightly from the $6.63 billion a year ago. Revenue was $20.9 billion, a 5% increase from $19.95 billion a year ago, helped by its Office, server software as well as Xbox businesses. This affirms what I have been saying for quite some time which is, although the company is no longer growing to the extent of the late 90s, it still remains a technology force - albeit one that sometimes frustrates investors.

Disclosure: I am long AAPL, BAC, MSFT, CSCO, SIRI.