If you're not actively trading stocks these days, chances are your performance is as dull as the overall market -- or maybe worse.
The market, of course, is clawing its way out of a huge pullback. At the same time, though, many of the market's most popular individual stocks have gone stagnant or fallen off a cliff. Holding onto those can be worse than simply owning the market via a mutual fund and letting it ride.
As investors, we tend to get attached to our holdings and hold on far too long. Yet, particularly in a market like this, yesterday's winners can become losers overnight.
Maybe you bought Starbucks (SBUX, news, msgs) when it was a hot growth stock, and had a great run. It's been swooning since 2006, but you still own it.
Or perhaps you own one of those giants that you thought you could hold forever -- say, Citibank (C, news, msgs), or worse, General Motors (MTLQQ, news, msgs). Stocks like these have given buy-and-hold investing a bad name.
We should really think of a stock as a car instead of a friend. Sure, it was new and shiny once, and the trip was fast and fun. But then the ride got rough, and even though someone tried to make repairs, the car doesn't run as nicely as it did. At some point, it's time to trade it in.
So with an eye to keeping your portfolio in a broad range of stocks, let me propose some trade-ins designed to help you shed past-their-prime stocks for today's leaders in the same sectors.
Sell Starbucks; buy McDonald's
McDonald's, of course, was always positioned to do well with a weak economy. Its value pricing is the perfect tonic for distressed budgets. But now, McDonald's is hitting Starbucks with a frontal assault on the premium coffee business.
In the works for years, the McDonald's idea of premium coffee at reduced prices was laughed at by coffee snobs. They are not laughing anymore. A quality product at a lower price has hit Starbucks where it hurts.
Sure, Starbucks has had its own problems, stemming from growing too fast and opening too many locations. Starbucks' foray into food has yet to pay any dividends, and I doubt it ever will. McDonald's, meanwhile, is beating Starbucks at its own game. McDonald's is the stock to own if you want a position in food and coffee; Starbucks is the stock to sell.
Sell Target; buy Wal-Mart
Low prices are driving more and more customers to Wal-Mart at the expense of competitors like Target. There's more at work than just a low-price strategy; not all discounters are doing well, as evidenced by same-store sales weakness shown recently by Costco (COST, news, msgs).
Wal-Mart is stealing market share as it attracts customers who shunned it not long ago. And it's now making plans to keep those new customers when the economy turns. One example: Long known as an anti-labor, anti-worker employer, Wal-Mart is now supporting reform to give all workers health care.
Wal-Mart is the leader in this space. Sell Target and buy it.
Sell Citibank; buy Goldman
Goldman Sachs has greatly benefited from their demise. There is less competition for trading and underwriting opportunities, and it shows on Goldman's bottom line. In its most recent earnings report, Goldman greatly exceeded expectations.
Citibank has not been so fortunate. Certainly, the Treasury helped it survive, too, and the government has basically said it won't be allowed to fail.
Citibank remains a mess, but Goldman is not. Goldman is the one to own.
Buy Toyota; ignore General Motors
At some point there will likely be a new General Motors stock, but I wouldn't give the company a second chance.
Toyota Motor (TM, news, msgs), on the other hand, benefiting from Detroit's demise, which it helped along. The popularity of its hybrid vehicle, the Prius, combined with an advantageous cost structure, long ago left the Detroit 3 domestic automakers in the dust.
So dump your old GM shares if you can find a buyer, or burn them. Ignore any new version. Buy Toyota if you want a position in autos.
Sell Morton's; buy Bob Evans Farms
Or, I should say, there were plenty of choices. As in most towns, the economic boom saw the opening here of many high-end steakhouses. The crash has left many of them empty. Recently I learned that one of my favorite joints, the local branch of Morton's Restaurants (MRT, news, msgs), was closing. I knew things were bad, but not that bad.
Obviously, consumers are trading down for family-style restaurants like Bob Evans Farms (BOBE, news, msgs). People are still eating out, but on a budget. Investors need to take note of this trend, as stocks like Morton's will likely lag the market while those like Bob Evans Farms are likely to outperform.
Mind you, fine dining will probably come back long before GM. But with the economy expected to stay low for some time, I'd rather own Bob than Morton's for the foreseeable future.
Which, of course, is the whole idea. The market has been ravaged, and many of yesterday's winners simply won't be coming back anytime soon. Meanwhile, with the recovery at best just beginning, the new winners can be had at good prices.
This is the right time to trade in last year's models.