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In today’s market environment it’s easy to get drawn into investing trends. This mentality can also feed into the hype surrounding new investments. It is like putting all your eggs in one basket with the belief that the proverbial cookie will fall out on your balance sheet. If I could give you one stock to sell for a quick buck, it would be this. That’s right folks. The stock has a lot of promise, but I think the odds against it keeping that promise is pretty good.
Just a few months ago I was crowing about Omega Healthcare Investors (OHI) after a big break out in the stock. The stock broke out of the $37.50 range, climbed to $42 at one point, and stayed close to that level for the next several months. It then dropped, and has since really been in a long consolidation range. A lot of short sellers were wondering if they would ever make a profit in this stock. Of course, it never really cleared that $42 level on this run, but you’d think we might have seen a level before this past week, but we haven’t. Even after last week’s biggest drop in OHI since late 2016, the stock is still upside down. What gives?
I think a pretty big reason is that there has been a massive institutional overhang in this name for some time now. The demand for limited public stocks is so high, and there is this fairly large no vote rule for institutions to abstain from investments. This makes it easier for big investors to see just a small amount of losses on one buy and not be forced to sell. This year has been filled with big setbacks in this type of theme. There are numerous ETFs that have failed to perform, and the tech giant that was supposed to beat every bar in 2019 proved that it may very well not be. We also saw the last name to market be a real winner, GoPro (GPRO) stock, fail in October and fall.
It can happen to all of us. The only thing we can control is our position sizing and positioning. Once these structural issues give way, that is the only thing we can rely on, but that doesn’t necessarily mean the roller coaster rides will stop. If you have an account dedicated to investing in small cap stocks, you probably already know that risk is a part of that equation. When will they occur? How many of us think we are exempt? I say you are not, if you have an account dedicated to small cap investing. This one is one you will want to watch closely.
So, what does that mean? There are steps that can be taken to play against risk. When the situation is right, I can see this stock rallying. I think it will go through the $45 levels for the next three to four months before pulling back. The nice thing is that you can buy it in increments in the $30 area to avoid having a sizable chunk of money in this name. As we have seen so many times, this stock is a value play. It will give you no guarantee that you will get back to $30, but if you are patient, you have to have a belief that you are going to have higher dollar worth in this name long term.
That means my only expectation is that we are on the same chart in three months time with this thing flirting near those important $35 and $40 levels again. It’s a bumpy ride, but you know I don’t like being scared off.