A Better Way to Profit Amid Vaccine-Driven Market Swings
The good news on the vaccine front keeps coming … and wild stock market swings are enjoying the ride.
Pfizer Inc.’s (NYSE: PFE) announcement last week that its COVID-19 vaccine was 90% effective sent value stocks soaring.
But the rotation away from the stay-at-home growth stocks quickly fizzled out on news that distribution required an unprecedented deep-freeze supply chain.
Then this week, Pfizer’s competition, Moderna Inc. (Nasdaq: MRNA), announced its new COVID immunization was 94% effective — and it didn’t require storage at such a low temperature.
So the stock market rotation roared back with value stocks leading the way higher once again!
If the swift change in market leadership is making your head spin, I have bad news. Expect more of it.
As I wrote last week, Wall Street is having a hard time deciding between the reopening trade and the stay-at-home trade as new COVID-19 cases surge. Hopes for a vaccine have revived long-term bets on stocks beaten down by the pandemic. But record numbers of new cases keep pandemic-boosted tech stocks chasing new record highs.
In this unprecedented crisis, investors are navigating through uncharted waters with a broken compass.
But despite the uncertainty, there’s a way to find your bearings.
Your GPS to Locate Profits
There are lots of ways to group stocks together.
Investors often simply categorize stocks by sector or by market capitalization.
But sometimes, the most common ways to group stocks miss the mark.
In a wild market like we see today, you need to look past those broad categories. And that’s when something called “factor investing” comes into play.
Quantitative analysts, or quants, use factors to identify stocks that have unique attributes that have historically led to outperformance.
They reveal which stocks have “alpha” potential.
Quants don’t care at all about Apple Inc.’s (Nasdaq: AAPL) latest iPhone model.
All that matters is if Apple’s stock has strong momentum, superior profitability metrics, positive news flow … quants have identified hundreds of such factors.
And that’s why I prefer factors as the first step in my investment process. It gives me a head start in pinpointing stocks that have the right ingredients to move higher.
How to Profit Using Factors
Over the past decade, I’ve developed many of my own factors and combined them into models.
Recently, I developed a new model that generates incredible results.
The top-ranked stocks have outperformed the bottom stocks by 19% every year for the past 10 years in my back test.
Just take a look at the results below.
That’s why I’m launching a new trading service that uses this new model, so you can profit too.
Before the launch though, here are two tips you can use now to profit from a factor-investing strategy:
- Don’t allocate all your eggs to just one factor. One investment that can add a touch of that balance to your portfolio is the JPMorgan Diversified Return US Eq ETF (NYSE: JPUS). It’s an exchange-traded fund (ETF) that selects stocks based on a combination of momentum, quality and value factors.
- Performance of quant factors can be volatile … just like stocks. One way to amplify your return potential while limiting risk is to incorporate options on top-ranked (or bottom-ranked) stocks.
That second point is the reason my new service will apply my quant factor model to options trading.
It allows us to leverage the alpha potential of factors while limiting our risk to the premium paid for that option.
And when conditions get tough, we can profit even when stock prices tumble.
So stay tuned for more news on how you can profit with this exciting new service!
Research Analyst, The Bauman Letter