Trend Spotter

Graceful Grady keeps an eye on a few contrarian picks in a turbulent market

The current anxiety many investors feel isn’t surprising. While they’d like to hear, “Come on in, the water’s fine,” market watchers seem to be saying anything but. Investment adviser Graceful Grady, founder of Grady Financial, a wealth management firm in suburban Atlanta, looks for opportunities that may have been punished but that show some upside potential. Indeed, despite the recent market downturn, Grady reassures his clients that there are still solid prospects in the stock market.

He starts with candidates that are dramatically off from highs posted last fall-before the market’s volatility increased considerably. From there, he researches individual companies. If the underlying impetus for a stock’s momentum is still there, he says, then there’s reason to be optimistic about future performance. His next step includes reviewing trading patterns of a company’s management and looking to see if there have been increases in a stock’s trading volume-when it has hit peaks in share price or bottomed out.

Grady’s firm has been around since 2002. He works with individuals who have up to six- and seven-figure accounts, as well as retirement assets for a handful of small businesses.

First things first: What’s your take on this market?
It’s going to be a tough year, and I plan to be very selective. There’s, of course, the recession scare, the subprime problem, and real estate bubble, and a sizable number of companies that are falling short of earnings expectations. Another key factor is the presidential election-if a Democrat is elected, you suspect that healthcare stocks might take a tumble; it’s more of a guessing game if McCain is the winner, although there’s sentiment that military contractors might benefit.

So where do you direct new money in a market full of uncertainties?
I’m following some of the trends out there-a lot of stock pickers say, “the trend’s your friend,” and I agree. Here’s an example: Consumer shopping has decreased, but necessities, or staples, are always going to hold up in a recession.

It’s also good to notice where the stocks are vis-a-vis their historical levels. The picks I’ve gone with of late are 40% to 50% off their price as late as November 2007. Consumer goods and technology can hold up in this climate, but you want a good product or service, you want an indication that management is still behind the company, and you want a sense that the stock has bottomed out.

What consumer goods stocks are you excited about?
One of my picks is Crocs Inc. (CROX), the footwear company with the distinctive plastic shoes. I like the product line and own a pair myself. The stock hit the mid-$70s in November and pulled back, in line with market concerns. I think Crocs, though, has a lot going for it. The company has seen good earnings growth as a result of its international exposure. Revenues in 2008 could hit $1 billion, compared with $700 million in 2007. I target Crocs to rebound to about $45 a share. There’s been no heavy insider selling, a fact that provides some peace

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