When Keith Fitz-Gerald recommended radiosurgery innovator Accuray Inc. (Nasdaq: ARAY), to Private Briefing subscribers last Jan. 13, the chief investment strategist said the stock could return as much as 70% to 90% in the 12 months to come.
Less than four months later, the stock had surged as much as 72%.
In the five years Keith and I have worked together, I've actually lost track of how many times he's made bold "Buy' calls that led to similarly hefty windfalls.
Thanks to his Geiger Index and the proprietary analytics he's developed, Keith has consistently identified big-upside stocks. Better yet, he often seems to do this just ahead of moves that are as big as or even bigger than Accuray's. (A case in point: In the Private Briefing special report "The Five Best Stocks for 2012," Keith's pick posted the biggest peak gain of the group, rising as much as 146% during the year.)
But what I really like about Keith is that he's a "complete" investor: He wants to help you make money - and he wants you to keep the profits you make. That's why, in addition to making these timely calls, Keith repeatedly and consistently counsels Money Map Press subscribers to manage their risk.
It's like a mantra.
Because of the way Private Briefing is structured, we don't issue real-time "Sell" alerts. But Keith does issue timely "Sell" alerts to his paid-service subscribers. And he repeatedly reminds subscribers across all Money Map Press publications - including Private Briefing - to use "trailing stops," and his "free-trade" strategy. His logic: He wants you to maximize profits, cap your losses and minimize your risk.
And risk management was the topic on his mind when we talked about Accuray over the weekend.
"BP, here's another example of why we take such care to emphasize the importance of risk management - especially in a market as uncertain and volatile as this one," Keith explained. "When an investor picks the right stock at the right time - like we helped our subscribers do here - the disciplined use of risk-management tools such as trailing stops ensures that they keep a nice portion of those gains. When investors grabs onto a runaway winner, they still need to make sure they don't get run over if it reverses for any reason."
When the market closed last Thursday, our Accuray recommendation was still up nearly 45%. That's when the Sunnyvale, Calif.-based device maker stunned everyone with preliminary results for its fiscal second quarter and guidance for all of fiscal 2013 that were far short of expectations. The stock dropped 20% in the aftermarket - and that translated into losses of the same magnitude once the market opened on Friday.
So while there's still a double-digit profit on Accuray (based on where we recommended the stock), it's not the 72% profit of last year, or even the 45% profit of last week.
And going forward, we think it's probably dead money - at least for the time being.
Indeed, investors who might be looking at this as a "Buy" might be better-served by looking elsewhere right now. Accuray leaders are optimistic about the company's just-unveiled technology. And there were some positive points made by the company in its comments. But any initiatives Accuray is putting in place will take time to gain traction. So it's not likely the stock will rebound until investors see some positive momentum.
If you still hold the stock, you can continue to hold it and wait for a turnaround (Zack's Investment Research rates it as a "Hold," for example). But, as we said, this is likely to be dead money in the near term.
And there are some specific potential points of concern you need to be aware of.
The revenue shortfalls show that Accuray remains susceptible to the weak U.S. and European economies. There are some reimbursement uncertainties. And you have to be concerned that rivals Varian Medical Systems Inc. (NYSE: VAR) and Integrated LifeSciences Holdings Corp. (Nasdaq: IART) are gaining ground at Accuray's expense.
"Managing risk is much more involved than most investors realize," Keith said. "They focus exclusively on losses, but it's about more than that. For instance, most investors think about it in terms of actual losses. ... they think about it in terms of losing money not realizing that capturing profits is part of the game when it comes to taking risk off the table." Keith said. "Naturally, you do want to avoid losses, and minimize the losses that you do suffer. But you can't ignore the profit side of investing ... even in risk-management. Taking profits is also a form of risk management because you're managing your "upside.' The last thing you want to do is let a big winner turn into a loser."
It's also important to know when to "let go." Markets change, and so do financial outlooks.
"Investors need to recognize when stocks have "moved-on,' meaning there may be better choices for your money based on current market conditions," Keith said. "That's investment capital you could redeploy into other choices that have more room to accelerate to the upside."
Part of the trouble is that investors want to be "right" - when their real focus should be on whether or not they've made money, and are maximizing their profits.
Speaking of maximizing profits ... Keith's Geiger Index is one of the hottest services you'll find. We've all seen the statistics that show how lousy a track record the institutional money managers have - so few even match the market in any given year ... let alone outperform it. And when you look at their records over a multi-year period, the picture gets even more dismal.
But over the last four years, more than 90% of Keith's Geiger trades have been profitable. Take a minute to take a look.
[Editor's Note: We recommend investors employ a 25% "trailing stop" on all holdings.]