In the Stock Market, Timing Is Everything

by Mitchell Clark, B. Comm.

One month ago, we speculated in this column about two very interesting domestic companies that are doing well in this recession. No doubt, a lot of the best speculative trading action has been in U.S.-listed Chinese stocks, but it’s great to see two domestic businesses that are growing.

One of these companies, Quality Systems, Inc. (NASDAQ/QSII), has now become fully valued on the stock market and is even just a little expensive. This company operates in what I think is one of the best businesses in the world — it helps automate medical and dental practices with new technology. There’s no better target market for any business than doctors and dentists. They don’t have time and they do have money.

Despite this stock’s now high valuation, I like the fact that the company pays a dividend to stockholders. Its current yield is just over two percent.

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The other great company we speculated about was ArcSight, Inc. (NASDAQ/ARST). This company sells IT security solutions to some very well-heeled customers. They include DISA (Defense Information Systems Agency), the U.S. Securities & Exchange Commission, Verizon, the U.S. Federal Reserve, McAfee, HealthSouth, Union Bank of California, Capital Blue Cross, and the U.S. Dept. of the Treasury. In a recession, no customer is better than a government customer.

Over the last four weeks, this stock has appreciated another four points, and it recently hit a new 52-week high of $23.00 a share. Not surprisingly, this stock is now fully valued given its recent capital appreciation on the stock market.

One thing that stands out from these two great companies is that they are successful businesses that are no longer attractive investments. These two growing companies are now expensively priced. So, if the best, growing companies in a recession are now expensively priced, how about the rest of the stock market? It goes without saying that I think this stock market is getting a little ahead of itself.

We never really got the period of consolidation that so many Street analysts were expecting (including me). The broader market pulled back in late June and early July, but that didn’t last long, and investors started bidding again.

I don’t know where the stock market is going, but I would say that investment risk is going up. Even as economic data are showing a mild improvement, investment risk is rising. So, I think it’s fair to conclude that you have to be very wary about taking on new positions right now. It’s difficult not to want to jump on the bandwagon, but the time to be a buyer was a few months ago. Now is the time to reap and not give up your gains.