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The Season Of 'Coutellerie': 3 Falling Knives To Catch And 3 To Let Go

Apr. 05, 2018 4:39 PM ETBEN, ENB, GE, GIS, PG, WBA, ENB:CA45 Comments
The Dividend Guy profile picture
The Dividend Guy


  • The market drops and some stocks more than others.
  • Buying opportunities are plenty, but you can also get cut catching a falling knife.
  • Here is my list of good catches and some you should never touch.

Each volatile market brings its load of opportunities. While the overall market is in a slump, some stocks drop more than others. Those companies hit the perfect storm; investors are nervous and looking to sell. Then, some bad news goes around their head and everybody was looking for an excuse to cash some profit - or save their skin.

Those stocks are often called a “falling knife.” Imagine you throw a knife in the air to impress people around you and you try to catch it as it rapidly falls. If you succeed, you look like a pro. If you fail, you will catch the blade and cut yourself. Picking a stock rapidly dropping on the market is like catching a falling knife. Some stocks will bounce back and make a great investment, others will continue to drop and bleed your portfolio. Therefore, we call a stock that is brutally dropping a falling knife.

I’ve searched the market for some good examples of both buying opportunities (catch) and stocks that will bleed your money dry (fall). Here’s what I found.

Catch: Walgreens Boots Alliance (WBA) down 12.60% ytd (as of April 3, 2018)

WBA is getting hit right, left, and center. First, the Amazon (AMZN) threat is looming in the drug retail industry. We can easily imagine which kind of damage AMZN can do on any industry once it goes on “price war mode.” However, consumers will continue to look for advice provided by a pharmacist in stores. Plus, Walgreens just increased its network with the acquisition of some Rite Aids stores. WBA now covers about 75% of the U.S. population through its 10,000 drugstores.

Second, large Pharmacy Benefit Managers (PBMs) bring lots of claim volume together and use it to negotiate lower prices. This shift in the market isn’t temporary and will

Many investors focus on dividend yield or dividend history. I respectfully think they’re making a mistake. While both metrics are important, aiming at companies that have and show the ability to continue raising their dividend by high single-digit to double-digit numbers will make your portfolio outperform others. When a company pushes its dividend so fast, it’s because it is also growing their revenues and earnings. Isn’t this the fundamental of investing – finding strong companies that will grow in the future? If you are looking for a great combination of dividend and growth, check out my picks at Dividend Growth Rocks.

This article was written by

The Dividend Guy profile picture
My name is Mike and I’m the author of The Dividend Guy Blog & The Dividend Monk along with the owner and portfolio manager here at Dividend Stocks Rock (DSR). I earned my bachelor degree in finance-marketing, own a CFP title along with an MBA in financial services. Besides being a passionate investor, I’m also happily married with three beautiful children. I started my online venture to educate people about investing and to be able to spend more time with my family. I started my career in the financial industry back in 2003. I earned several promotions along with a good pile of diplomas. I had lots of fun working with clients in private banking for half a decade, but thought I could do more with my life. In 2016, I decided to take a leap of faith and left everything behind to travel across North America and Central America with my family. We drove through nine countries and stayed three months in Costa Rica before returning home. This was an eye-opening adventure that led me in 2017 to quit my job in the financial industry and pursue my dream; helping others with their personal finance through my investing websites. You just found the reason why I quit my suit & tie job!

Analyst’s Disclosure: I am/we are long WBA, ENB, PG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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