Three Urgent Investment Warnings

Published Wed, Feb 13th, 2013   Louis Basenese, Chief Investment Strategist

Repetition breeds retention.

And right now, there are three investment warnings that I need to repeat so your portfolio doesn’t suffer the consequences of any unfortunate memory loss.

And to really drive my points home, I’m going to throw in some telling graphics, too.

So let’s get to it…

Print is Officially Dead

Back in September 2012, I announced that print media officially died.

Readers balked at my proclamation… but the proof keeps piling up.

For example, after 80 years, Newsweek went out of print in December 2012.

Regional newspapers keep folding, too. One of the most recent deaths involved the 143-year-old News & Messenger in Manassas, Virginia.

Who pulled the plug? None other than Warren Buffett’s Berkshire Hathaway.

Hmm… if Mr. Buffett thinks newspapers are a bad investment, chances are, he’s right.

Turns out the data supports such a stance, too.

From 2002 to 2012, print advertising shrunk by 12%, while magazine spending decreased by 5%. But over the same period, internet advertising jumped by 15%.

Heck, one digital company’s ad revenue alone dwarfed the ad revenue of the entire U.S. newspaper and magazine industries. And remember, since advertising always follows eyeballs, Americans have clearly given up on print media.

Bottom line: Print media is dead. So don’t buy into the dead-cat bounces exhibited by leading print media companies like The New York Times (NYT) and Gannett Co. (GCI). Over the last year, both stocks are up 17.8% and 31.5%, respectively.

Instead, consider buying some cheap put options to profit from their eventual demise.

Earnings Drive Stock Prices

As the latest earnings reporting season draws to a close, here’s a fresh reminder if you’re looking to invest in new stocks: Earnings ultimately drive share prices.

I know, I know… I’ve been saying that for years. But here’s new evidence to back up my repetition.

The latest research from LPL Financial’s Jeff Kleintop shows that earnings have been the primary driver of stock prices during the current bull market.

Bottom line: Given that this bull market is entering its fifth year, don’t even think about buying any companies unless their earnings are improving.

And while you’re at it, be even more selective. Stick to companies with improving sales and future guidance, too.

To get started, here are the three most recent companies that announced improvements on all three fronts: FleetCor (FLT), Microchip (MCHP) and Molina Healthcare (MOH).

Don’t Bite into This Rotten Apple

With each passing day, my April 2012 call to avoid Apple (AAPL) proves more prescient. The stock has dropped 14.3% since then. Not that I’m keeping track or anything.

Of course, with each tick lower, more investors become convinced that it’s an irresistible bargain. But resist the temptation.

When it comes to Apple’s stock, the trend is not your friend.

Case in point: For the first time since the bull market began, Apple shares officially underperformed the S&P 500 over a one-year period, according to Bespoke Investment Group.

Bottom line: Although I’m sure that Steve Jobs left Apple locked and loaded with a few ideas before his premature death, it’s still unclear if new CEO, Tim Cook, can execute them.

Even more troubling, it’s unclear if Cook can come up with any new ideas of his own.

In other words, an investment in Apple right now (still) carries much more downside risk than upside reward potential.

Ahead of the tape,

Louis Basenese