Trend following is a time-honored investing method.
Many investors erroneously believe trend following simply means following the price trend in a stock or commodity. Several books and many investment articles perpetuate the price-only myth, resulting in its widespread acceptance as truth.
But the savviest investors realize that although trend following may refer to following a price chart, to be effective, it needs a much deeper, all-encompassing investing method. I like to think of trend following from a top-down perspective.
Understanding the global or national economic climate by asking if we are in a bear or bull market is the first trend to follow. Next, societal trends need to be considered, such as what people are buying, what's hot, what's on the horizon, and what ideas and concepts are trending.
Finally, drilling down and discovering what industries and specific companies are poised to ride these trends makes far more sense than merely looking at a price chart that, by definition, only illustrates the past.
Using this three-step, trend-following guide, I've discovered a company poised to ride an overwhelmingly powerful trend well into 2014.
On Dec. 19, the Federal Reserve revealed that it will begin to taper its monthly $85 billion bond-buying program (otherwise known as quantitative easing).
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This is a clear sign that the economy is improving. In addition, the Fed clearly and without any hedging reiterated that it will not increase interest rates for a much longer period than expected. Interest rates are the underlying drivers of stock prices and the economy in general. Continued low interest rates means a lasting bull market in most sectors of the economy. The stock market applauded the Fed's decision by rallying to a new record high.
Interest rates are the prime driver of real estate activity. Low rates mean that developers can inexpensively borrow money to build more housing and commercial properties. Home buyers can borrow more capital for purchase when rates are low and commercial users can expand their operations easier and at less cost.
One company that is and will continue to benefit from the low interest rates and improving real estate trend is Move (Nasdaq: MOVE).
Move is the leader in online real estate. It operates a network of websites focused on consumers and real estate professionals. The variety of web properties includes Realtor.com, Move.com, ListHub.com and TopProducer.com, among others. Consumers and professionals use the network to research prices, property records, mortgages and a host of other critical information for the home buying process.
The company has an advertising relationship with more than 400,000 real estate professionals, which provide a critical marketing edge. The National Association of Realtors is the 800-pound gorilla when it comes to residential real estate. This organization owns the term "realtor," and Move operates their website, Realtor.com.
|Move offers a variety of mobile applications for its portfolio of websites.|
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This site alone has more than 4 million home listings, of which 80% are updated on a 15-minute basis and the others at least once every 24 hours. This creates the most up-to-date and actionable information available online for the real estate market. Move also offers a variety of mobile applications, as well as powering the real estate sections of AOL.com and MSN.com.
As you can imagine, Move has been riding the improving real estate market and overall-economy trend aggressively. The third quarter revealed 19% revenue growth to just under $59 million, while the average monthly users of Move's web properties expanded by 22% to more than $28 million in the third quarter.
Move CEO Steve Berkowitz stated, "The third quarter was a strong quarter for Move, with both consumer advertising revenue and software and services revenue growing, resulting in our eighth straight quarter of sequential revenue growth. We are continuing to execute efficiently and effectively and will continue to capitalize on the market opportunity in front of us."
Seeing how Move is benefiting from the overall economic trends, it provides a strong reason to purchase shares. In addition, the fact that one of the world's most successful hedge funds has substantially increased its stake in the company does nothing but increase my confidence.
SAC Capital, the brainchild of uber-investor Steve Cohen, has been in the press lately for the alleged misdeeds made by several of its traders. This does not take away from the incredible average of nearly 30% annual gains over the past two decades.
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According to TickerSpy.com, SAC's portfolio is up more than 190% since 2009. These are massive returns that prove the trend-following, stock-picking savvy of Cohen and his trading teams.
SAC recently ramped up its holdings in Move to 1.98 million shares from just 1,939 shares earlier. This represents more than 5% of the company's outstanding shares.
If you take a technical look at the chart, shares have rallied more than 97% during the past 52 weeks. The stock has fallen off of its yearly high in the $18 area and has formed a base at $14.50. The price is below the 50-day simple moving average, but above the 200-day simple moving average, in the $13.80 range.
Risks to Consider: Move is the leader in the online real estate space. It controls the market and holds relationships with the National Association of Realtors and a variety of advertising partners. However, competition is fierce, with several companies nipping at Move's market dominance. Always use stop-losses and diversify when investing, no matter how compelling a single idea is.
Action to Take --> I like buying Move off of the $14.50 support level. Initial stops should be at $13, and my 12-month target is $22 on the shares.