MINNEAPOLIS (Stockpickr) -- I've analyzed dozens of companies during the latest earnings season. For the most part, companies beat estimates by a wide margin. As a result, stocks have gained more than 5% so far this year as measured by the S&P 500.Not even a minor correction can take the enthusiasm out of the market. As if on cue, dollars are finally rotating from safer securities such as Treasuries and into stocks or other more-risky assets. This is exactly what the Federal Reserve was looking for with its essentially free money interest rate policy. On a stock-by-stock basis, many names have zoomed higher, not just this quarter but over the last two years. Where that puts us today is in a bit of a quandary. On one hand, we are still early in an economic recovery from a very deep hole. On the other hand, recent gains in stocks lead to valuations that may be a bit ahead of themselves. Earnings estimates for the future are on the rise too. For companies to beat estimates they will be jumping over a higher bar. Related: Stocks to Consider for Third Year of Bull Market Call me conservative, but I like to make my money when the odds are in my favor. Lately, the odds that corporate earnings continue to blast by estimates are decreasing with every quarter. Thus, I do suggest a more conservative approach when it comes to investing over the coming months. The recent correction may be merely a taste of what is to come. In order to best protect gains, investors can apply the brakes with a long/short pair-trade strategy, going long one stock and short another. Here are two pair trades to consider to secure gains if stocks continue to rise and to lose less if they stumble.
Long Time Warner/Short New York TimesMedia companies have been hurting disproportionately compared with other industries. Heavily reliant on advertising dollars, media companies are particularly vulnerable during a recession. It is always easy to cut marketing dollars when times are tough. Within the media industry, the print business has been on the decline since the advent of the internet. Although some companies have transitioned to include online advertising, the dollars spent there simply cannot make up for lost print ads. Many print companies have struggled mightily, with some venerable names actually filing for bankruptcy over the last two years. From an absolute return perspective, long/short investors can play this dichotomy between print and other medium. In particular my thesis would be to suggest that a cable television company, or at least a diversified media company, will fare better than one predominantly based on print. My picks would be to go long Time Warner ( TWX) and sell short New York Times ( NYT - Get Report). With stocks possibly ready for a step back, I would expect New York Times to see more losses than Time Warner. On the upside, well, I'm not sure what the upside is for New York Times other than being possibly bought in an acquisition. In a recent update, New York Times noted that print ads in February were down in the single digits on a percentage basis. Using a bit of wordsmithery in the release, the company stated this was an improvement over January. So print ads are down -- but just not by that much. It did say that online ads were higher in the single digits but that they still represent only 15% of total revenue for the company. The company says it will begin charging for content. I'd be skeptical that fees can make up for lower online revenue, but management clearly is hoping they will. The fact is that pay models on the Internet have proven to be problematic in many ways. The Wall Street Journal seems to pull it off, but will a more liberal audience for The New York Times be receptive to paying for content? I'm not so sure.
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