True Wealth Systems subscribers are already up 70% on shares of health care stocks. . .
We're sitting on fantastic gains on this trade that I recommended early last year. . .but we have no plans to sell.
We don't sell things simply because we're up 70%. We sell when it's time to sell. And we aren't there yet. I expect these stocks will soar much higher before this great stock market run is over.
We're staying in the trade for two very important reasons:
1. The conditions that got us into the trade are still in place.
2. We want to stay with this trend as long as possible.
These two things sound simple enough. But they are incredibly important. They are two big keys to successful investing.
Let me briefly explain each...
First up, my True Wealth Systems subscribers bought the ProShares Ultra Health Care Fund (RXL:NYSE), which is a leveraged trade on drug stocks. Despite the move higher in the healthcare sector, these stocks are still cheap based on history.
Here's how I explained it in True Wealth Systems: "Drug stocks today are just as cheap as they were back in 1984, when they took off for thousands of percent gains over a massive 15-year bull market."
I also explained what happened in the last great bull market in drug stocks: Johnson & Johnson rose 2,393%. Pfizer Inc. rose 3,289%. Merck & Co. Inc. rose 3,018%. And Amgen Inc. rose an astounding 31,150%. (These four companies are the top holdings of RXL, making up 25% of the fund.)
Even better, you could argue drug stocks are a better deal today than they were back in 1984. . .
You see, these four names pay a 3% dividend, while 10-year government bonds are paying 2%. This shouldn't happen, because you have upside potential in these stocks. But you have essentially no upside potential in a bank deposit or a bond you buy and hold to maturity.
Back then, I wrote, "In order for things to return to normal, either drug stocks must more than double in price (which would push their dividend yield below 2%) or government bonds must crash. Either is possible. But I put my chips on drug stocks doubling first."
So far, that's been the right advice. Drug stocks have soared, while government bonds are still paying 2%. But drug stocks are still cheap. Johnson & Jonson, Pfizer, Merck and Amgen on average pay a 3% dividend and trade at just 12 times forward earnings.
As for the second part, we want to stay with this trade as long as possible. We want to capture the BIG moves. . .the thousand-percent winners, if that happens. And you can't do that by selling early.
Back then, I wrote, "We can't know if this current move is The Big One. But it certainly could be. So we want to be on board."
We want to stay with the uptrend as long as possible. . .even beyond "reasonable" valuations. . .particularly now, while we're in the Bernanke Asset Bubble. In short, as long as Bernanke keeps interest rates low—which we expect him to do for the next two years, at least—investors have no choice but to buy stocks.
So yes, we're up 70% since early last year in RXL. And no, we're not selling. The story is still intact. And we still have the uptrend.
If you're sitting on big gains in safe, cheap stocks like these drug stocks right now. . .and it's making you nervous. . .get over it!
Have your exit plan in place – like a trailing stop. But don't sell. As I've explained many times in previous DailyWealth letters to you, this market has the potential to run much higher.
Look, you can't make triple-digit gains by selling early—and triple-digit gains are definitely possible here.
We're up 70% since buying RXL in early 2012. . .but we don't have a compelling reason to sell, so we won't!
Steve Sjuggerud's Daily Wealth