How to Make a Winning Trade off of One of Bill Gates’ Top Holdings
I’m a stock screening maniac. All day, every day the market is open, I am running my various stock screening programs in real time. I search across time frames, sectors, indexes, and exchange-traded funds (ETFs) in an effort to locate companies prepped to continue trending in the same direction or about to bounce/fall. In other words, I’m looking for solid trading set-ups that can be exploited for profit.
I utilize a variety of traditional technical indicators mixed with several proprietary ones to locate these opportunities. I like to short-term day trade as well as longer-term swing trade. The criterion used to identify tradable stocks depends on the time frame used.
My bread and butter trading method is swing trading with a holding time of seven days or more. I have discovered that buying weakness in solid, up-trending stocks is much better than simply buying on upward momentum. It’s not only my experience that indicates this fact, it’s extensive studies done by market researchers continually indicate that the edge lies in buying weakness — not strength — in the stock market, so what I look for is a stock that has fallen off its highs for five to eight days in a row.
The major caveat is that it has to be above its 200-day moving average, despite falling sharply. In most cases, the 200-day moving average will become my stop level, and I’ll average in two to three times with my purchases, as it’s impossible to tell exactly when the bounce will occur. If it hasn’t happened in seven days after the first entry, my trading system closes the trade and starts looking for other opportunities. If the trade does become profitable by the 3rd third entry, then I’ll hold it with trailing stops for as long as possible and capture profits. Although many trading axioms are wrong, holding winners and cutting losers is one that remains extremely relevant.
#-ad_banner-#While this trading method makes perfect sense as a pure technical entry tool, I tweak it by looking at the fundamentals of the stock prior to deciding to buy. Just like only buying above the 200-day moving average acts to prevent catching a falling knife, knowing why a stock is falling can prevent unwanted losses. This is why every stock that is revealed by my swing trading technical screening is drilled down to fundamentally make certain I have a definitive edge when I buy.
Imagine a stock that fits all the above technical criteria, is fundamentally solid, pays a nice dividend and is owned by one of the wealthiest men on the planet.
It’s a company that technological changes can never put out of business, in an industry that everyone, from the most humble to the President of the United States, uses on a daily basis. Not to mention, it’s paying a 4% dividend yield.
If you haven’t already guessed, the industry is waste management and the company is Waste Management, Inc (NYSE: WM).
This solid company has been knocked off its high after missing analyst estimates by just $0.01 in the first quarter when it reported on April 26. The main reasons for the miss are due to higher fuel prices and lower commodity prices at recycling centers. These factors are likely short-term impediments — in other words, the selling is unwarranted fundamentally. Oil prices have already dropped significantly, and price pressures appear to be easing on fuel. In addition, Waste Management is making strong inroads in the use of its own biogas to power its fleet of vehicles.
Digging deeper into the fundamental picture shows a 4% dividend yield, a market cap of $15.7 billion, a debt-to-equity ratio of 1.6 and a price-to-earnings (P/E) ratio of 17. Over and above these standard metrics, I look at who holds the stock. In other words, does this company capture the interest of institutions, hedge funds and others in the know? Waste Management Inc passes this test with flying colors. The Bill & Melinda Gates Foundation own 17.6 million shares.
Risks to Consider: As with any stock, there may be things going on behind the curtain that we can’t yet see, so be certain to use stops. My initial stop level is the 200-day moving average at $32.62. Should shares drop below the 200 day moving average, the odds shift, making it a much more risky play on the long side.
Action to Take –> This stock is a solid buy here. The technical and fundamental picture is very clear. I don’t like setting target prices because they act as a way to cut profits when profits should be allowed to run.