Minimizing Risk with Fundamental Analysis and Market Timing (AMZN, PCLN)

In the Precedent-Based model, manager John Ward combines fundamental analysis with market timing strategies that come from the daily tracking of technical action. Ward’s objective for the model is to minimize risk.  The model becomes more diversified when the market is trending down and also holds inverse ETFs at times. The technical action of a stock will often determine whether or not it will be sold.

The top holding in the model is Amazon.com (NASDAQ: AMZN). AMZN’s price has been going up fairly steadily since August 30th, 2010 at which time it had a closing price of $123.79 according to Yahoo! Finance. On December 23rd, AMZN had a closing price of $182.59. Their net revenues have also been rising, growing from $14.8 billion in 2007 to $19.2 billion in 2008 and then to $24.5 billion in 2009. During the first three quarters of 2010, AMZN had already reported $21.3 billion in net revenues. The company’s total liabilities have also grown, but so has their stockholder equity which rose from $2.7 billion in 2008 to $5.3 billion in 2009. AMZN’s price to earnings ratio is higher than many competitors.

The next top holding in the model is Priceline.Com Inc (NASDAQ: PCLN). PCLN has a lot of competition in the online travel market, but they have an innovative way to capture a good portion of the market share. With their Name Your Own Price® option, they give travelers the opportunity to take control of their travel spending budget and benefit from intense discounts. Their net revenues have been growing, rising from $1.4 billion in 2007 to $1.9 billion in 2008 then to $2.3 billion in 2009, and their quarterly net revenues from 2010 show that they have already beaten that for 2010. They have a much higher price to earnings ratio than many of their competitors, but they have been reducing their total liabilities over the past four years and their shareholder equity has been increasing.