After more than two decades of investing and trading in the stock market, I have learned that a good trader's mind works differently than everyone else's.
Good traders see the world in a unique way and ask questions that others don't think of. Let me give you an example. Colorado passed a measure in this week's election to legalize recreational marijuana use. If you bring this up with the average person or passive investor, you are likely to get numerous responses: that they were unaware of this development, or that it's one more reason to ski Aspen this year, or maybe that pot is a gateway drug. But the first thing a good trader wants to know is how to play the increased demand for pizza delivery that will result from this new law in Colorado.
I consistently ask myself these types of questions when I am looking at current events. This leads me to research stocks that I would not have otherwise discovered, and hopefully allows me to recognize opportunities before others realize that a recent event could be a catalyst for a stock's prospects or help sentiment on the equity.
Here are two recent events that I believe could lead to good stock selections.
Due to the financial crisis and anemic recovery, state and municipal budgets are under extreme pressure. Many are turning to legalized gambling to create jobs and bring in additional tax revenue. Maryland became the latest state to approve casino gambling Tuesday. This means increased demand for everything that goes into opening and operating a casino, including the advanced slot machines currently in use. This should be good for International Game Technology (IGT), which produces these machines. The stock is selling for under $13 a share with a median analyst price target of $16 a share. IGT also pays a 1.8% dividend and sells for just over 11x forward earnings, a discount to its five-year average (17.8).
Other than the election, the biggest story of the last few weeks is Superstorm Sandy and its aftermath. It is heartbreaking to see the loss of life and the millions of people that have had their lives uprooted. My old neighborhood in Hoboken, N.J., was rendered unlivable from what I hear. It is amazing to see how many people have been forced to move their belongings into storage or to a new abode. This tragedy, however, could be a catalyst for companies that rent moving trucks, including AMERCO (UHAL), provider of the iconic do-it-yourself moving trucks and storage facilities that are a big part of the mobile American life. UHAL closed Wednesday at $112.51 a share and is rising sharply in morning trading. Shares are cheap at just over 8x forward earnings, and the company just declared a $5-per-share special cash dividend. The stock has a median analyst price target of $136 a share.