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The Secret Weapon of Long-Term Stock Investors

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·5 min read
In this article:
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  • (1:00) - The Power of Dollar Cost Averaging: Should You Keep Buying?

  • (9:30) - Finding Strong Stocks For The  Long Term Investment

  • (21:15) - Episode Roundup: MSFT, SHOP, ETSY, MPC, SIG, TTE

  • Podcast@Zacks.com

 

Welcome to Episode #318 of the Zacks Market Edge Podcast.

Every week, host and Zacks stock strategist, Tracey Ryniec, will be joined by guests to discuss the hottest investing topics in stocks, bonds and ETFs and how it impacts your life.

This week, Tracey is going solo to talk about the secret weapon that long-term stock investors can deploy during a stock market sell-off: dollar cost averaging.

Dollar cost averaging is when an investor invests the same amount of money on a set schedule, maybe once a week or once a month, regardless of if the stock market is higher or lower at that time.

Two Ways to Dollar Cost Average

There are really two ways investors can dollar cost average.

1.       Buying the indexes such as the S&P 500 or the NASDAQ

2.       Buying individual stocks

Tracey believes that one works better than the other.

As she has talked about in prior podcasts, in 2000 and 2001, after the stock market had already started to sell off in the dot-com bust, Tracey started dollar cost averaging in Microsoft MSFT.

Microsoft was one of the 4 tech titan stocks of the 1990s which was one of the big stock winners of that decade. Many Microsoft employees became millionaires from their stock options.

As it started to sell-off in 2000, Microsoft suddenly seemed on sale. But it was a fake out. Even though Tracey dollar cost averaged for several years, she ultimately got out of the stock by 2005-2006.

Microsoft’s stock didn’t hit the 2000 highs again until 2013.

Is Shopify this Era’s Microsoft?

Shopify SHOP was one of the investor favorites of the pandemic, with shares soaring to new all-time highs. At one point, over the last 5 years, Shopify shares were up over 1750%.

But they’ve fallen 75% in the last year and are now up just 249% during the last 5-years. That’s still beating the NASDAQ’s 5-year return of 76% but the outsized gains have been wiped out in 2022.

For some investors, it seems like Shopify shares are on sale after the big slide. But are they?

Shopify still trades with a forward P/E of 102.

Is Shopify a value trap like Microsoft was in 2001?

Head in a New Direction

If you’re going to dollar cost average individual stocks, look in a new direction. What worked the last 5 years might not work the next 5.

Use the Zacks Rank to find stocks with rising earnings estimates and look for those with cheap P/E and P/S ratios.

3 Zacks Rank Strong Buy Stocks that are Cheap

1.       Marathon Petroleum MPC

Marathon Petroleum is a refiner. Shares are up 63% year-to-date so some investors will be reluctant to jump in “at the top.” That’s why dollar cost averaging is so effective. It takes away the fear of buying on the highs because it happens automatically.

Marathon Petroleum is very cheap with a forward P/E of just 7.5 and a P/S ratio of 0.4. It also pays a dividend, currently yielding 2.3%.

Marathon Petroleum is a Zacks Rank #1 (Strong Buy).

Should you be jumping into Marathon Petroleum?

2.       Signet Jewelers SIG

Signet Jewelers is the beneficiary of the 2022 wedding craze. The company operates Kay, Zales and Jared retail stores and sells on line. This is a record year for weddings as couples who put it off during the first two years of the pandemic are diving in now. That means more jewelry sales.

Signet’s revenue is expected to rise another 5% this year and the earnings estimates are on the rise.

After beating in the fiscal first quarter 2023, the analysts have been raising their full year estimates. The Zacks Consensus Estimate has jumped to $12.47 from $9.82 just 90 days ago.

But Wall Street is worried about consumer spending as inflationary pressures hit. Shares are down 31% year-to-date.

Signet is dirt cheap with a forward P/E of just 4.7 and a P/S ratio of 0.4. It also pays a dividend yielding 1.4%.

Is it a good strategy to dollar cost average into some of the retailers like Signet Jewelers this year?

3.       TotalEnergies TTE

TotalEnergies is a large French integrated oil and gas company. With oil and natural gas prices at multi-year highs, TotalEnergies is expected to see soaring earnings in 2022.

The 2022 Zacks Consensus Estimate is calling for $11.81 which is earnings growth of 76.8% compared to last year when it earned $6.68.

TotalEnergies pays a dividend, currently yielding 5%.

It’s also dirt cheap, with a forward P/E of 4.7 and a P/S ratio of 0.6.

TotalEnergies shares are up just 13.5% in 2022.

Is TotalEnergies a hidden gem?

What Else do you Need to Know About Dollar Cost Average?

Tune into this week’s podcast to find out.

[In full disclosure, Tracey once again owns MSFT in her personal portfolio. She bought shares again in 2019. No, she is not currently dollar cost averaging into it.]


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