What’s the difference between industrial stocks and crypto stocks? Just three things. But they are an IMPORTANT three things. Check out $DOV $KMT $STRL $LFIN $GBTC $RIOT and $NETE (December 21, 2017)
KMT DOV KMT DOV STRL DOV KMT GBTC KMT STRL DOV GBTC RIOT LFIN GBTC LFIN KMT DOV STRL LFIN XLI XME GUSH
Just a few thoughts on real businesses versus maybe not so real businesses, I guess. Bitcoin has been all the craze lately and that is fine. I am participating in that too to a very small extent, probably smaller than you might think because I get what it is. What it is, for the most part, it is impossible to figure out. I wrote a morning note about this that actually went into detail, so definitely read that, I am not going to go through it again. It definitely is relevant to how you price these Crypto Clouds versus real companies.
I want to start with a couple of companies that I added to our growth stock list a few days ago, back on the 15th, so last week, right? The reason I added these, there were a couple others too, was because they are in the growth industry right now and the fundamentals in terms of return on equity and sales growth and earnings per share growth, those are the only three fundamentals I care about; hence this is why I don’t need my CFA rating. It is like if I know those three things you guys can keep all that other stuff to yourself, I don’t need it. I look at those three things and I see really strong growth profiles on stuff like this: Kennametal ( NYSE: KMT ). We added this to the list back on the 15th. It is up, not a lot, less than 5 percent in the last four trading days, but you can see it is moving higher.
By the way, on these, let’s just look at these. I don’t think it is too late for you to buy Kennametal ( NYSE: KMT ). You have got to realize what this is what the chart looks like; these are intended to be long-term holds. Then if you look at Dover ( NYSE: DOV ), again, a weekly chart. This is definitely in an uptrend, no doubt about it. Here I don’t think we got quite as much, I am just basing these on the closing price of the day that I mentioned them, so 3.5 percent here. Then Sterling ( NASDAQ: STRL ) was another one that I added and that is down a bit, down 4.5 percent, so they don’t all work out. But long-term I like the way this stock is trending.
This is kind of old school stuff. Engineering and construction. Industrials, diversified materials, tools, anything from drills, syringes, pumps, this and that, that type thing. And then we have got on the other hand this, Bitcoin Investment Trust ( OTCMKTS: GBTC ). I guess this is essentially an ETF I guess; their underlying is Bitcoin but the premium is absolutely massive. And so this really has no business. It is literally reliant on the price of Bitcoin. You look at what this has done since the top here, we will say over the last five trading days, this has pulled back 35 percent since the 15th of December. That same time period, the 15th of December, Kennametal ( NYSE: KMT ) has run up, Sterling ( NASDAQ: STRL ) has run down. And then Dover ( NYSE: DOV ), as you know, has also run up.
So what is the big deal? It is an underlying business. It is an underlying business. These things all do make money but you are not going to see any of that money and that is really a key point here. “Well, I get a little dividend.” Okay great! Good for you, 1.89 percent, go buy a pack of smokes. You don’t get any money for owning this. The only money you get is when you buy low and sell high. So all this other stuff, the stuff that I talk about, earnings per share, revenue growth, return on equity, none of that stuff really matters to you and me. It is absolutely irrelevant; except that it is not quite irrelevant, and this is why: Because we know what the big mutual funds, what the big traders, what the big investors, what the big hedge funds, we know what they are looking for. They are looking for companies with strong growth and earnings per share and revenue and that get a lot of bang for their buck. In other words, a high return on investment.
Those are the fundamentals that I look at. Not because I am so smart, not at all. But because I know that that is what the funds are looking at; that is what the smart money is looking at. I wouldn’t care about any of that if they would just tell me what they are buying, “Hey Dan, we are going to start moving into Dover. We are going to buy Dover.” “Okay, great! Are you going to tell me why?” “No, just letting you know we are going to start buying 500 million shares of it.” “Alright, thanks a lot. I will go grab me some of those now too. I appreciate the call.” If I would get a call like that fundamental analysis would go out the window. All I care about when I am looking at fundamentals is, are funds going to buy that stock? Is it attractive to them? So because of that we actually have an edge in studying fundamentals. As long as we realize that the only reason we are looking at it is because we know that big money is looking at it. That is the degree of certainty in trading stocks. That is your edge, right there.
Now, contrast this with Bitcoin. We don’t know what the big money is doing. We don’t even know who the big money is. I have seen estimates that 1000 people control 95 percent of Bitcoin, something like that, it doesn’t matter. The bottom line is, it is all anonymous, nobody files quarterly reports, nobody tells you what they are doing. There is such an inherent risk in this that if you are going to trade this stuff you need to trade it with one finger on the sell button and the other hand on the ejection handle. The bottom line is, these things are very, very, very risky. And because they basically move on air, they move on the trending psychologies of crowds, right when you feel like they are going to the moon is when they actually crash.
We can see this is some of these others. Riot ( NASDAQ: RIOT ), you have got the same kind of thing; where this moves up. You can’t look at this and say, “Well is this a buying opportunity?” What can you base that on? “Oh, well it is at 25.00.” Sure, that is what I think. I talked about that in the forum today, “Wish I could short Riot, I would cover it at 25.00.” But for all we know this is going to go down further, right? Why? Because we don’t know what the funds are doing. We don’t know what they are looking at. So this kind of stuff is literally irrelevant to this stuff. At the first sign of weakness, Boom! get out. You can always get back in.
Here is the poster child for that, LongFin ( NASDAQ: LFIN ). This was the day, I believe it was just this Monday when Fast Money had one of the most obnoxious segments I have seen. Everybody talking over everybody else with the CEO of this company. They basically established that it was just kind of a farce. I won’t say a scam because I don’t know that. But basically, there was no justification for this. That was back here on Monday the 18th. The stock traded down the next day as you knew it would, but it actually traded higher again. Why? Are the funds buying the stock? Gosh no, they’re not. This is a toy for retail traders, that is what this is. You have to understand that this is what is happening on these stocks because they have no underlying business. They all claim to; this is like some big Bitcoin mining company. Great, that is what is happening to the price of Bitcoin over the last few days. So does it really matter? No. What matters to you is the psychology of crowds and what they are doing.
So you can look at these stocks like this, Kennametal ( NYSE: KMT ), or like this, Dover ( NYSE: DOV ), or this, Sterling ( NASDAQ: STRL ). These all have underlying businesses so you can kind of gauge psychology a little bit different than here, LongFin ( NASDAQ: LFIN ). Here you are literally just playing with fire after you have jumped in a tub of gasoline, so don’t be doing that. If you want to make some good money on some of these, Bitcoin or cryptocurrency trades or I will say it, plays, because that is what they are. If you want to do that then you need to sit at your screen all day and just trade these things. But if you don’t have the ability or the inclination to do that then stay away from these things; let’s just go here, $10.00 up to a high of 145.00, making 1300 percent return in three days. Nice, but then you are also taking a big move to the downside in a very short period of time too.
Instead of doing that, if you want to put a small amount of money in that is fine. But otherwise, stick with stuff like this, stick with the industrials ( NYSEARCA: XLI ), stick with the metals ( NYSEARCA: XME ), stick with the oil ( NYSEARCA: GUSH ) stuff. Do that and you are not going to be making as much money as you are on these crypto things if you are right. But you are definitely not going to lose near the money that you will if you are wrong. I hope this works for you. Stick to those tried-and-true companies because you know the mutual funds and the money managers are looking at those; you have an edge there. If you are just trading the chart on any of these cryptos you are just at the whims of the market; that’s it.
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