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Wednesday, November 19, 2008

Too Soon

I must admit I was a bit too soon to get bullish. Those ten stocks got hammered pretty good, except Q only a little and XOM went up a bit. The October 1929 crash didn't bottom out until the summer of 1932 (and the market peak was earlier in 1929). Three years from the October 2007 peak would be late 2010 - another two years away. I hope it's not that bad, but hey could be.

My seven year old daughter is mad for Skechers shoes. They are very cheap, sold at JC Penny's and outlet stores. The company is SKX, founded not too long ago and run out of Manhattan Beach. Their shoes are made in China, most or maybe all. SKX is trading well below book value and has a P/E of 6. People can only put off buying shoes for so long, and I should think cheap ones would be attractive in a recession. SKX traded today just under $10.

Monday, October 13, 2008

Feeling bullish

Ticker Price EPS08 EPS09   Div   Book PE
DELL  $15.21 $1.44 $1.65 $0.00  $1.44 11
Q      $2.74 $0.41 $0.43 $0.32  $0.29  7
MSFT  $25.50 $2.12 $2.39 $0.52  $3.96 12
ADSK  $27.77 $2.28 $2.61 $0.00  $5.60 12
BMC   $27.31 $2.14 $2.41 $0.00  $5.14 13
NOK   $17.12 $2.22 $2.22 $0.78  $4.29  8
IBM   $92.21 $8.73 $9.42 $2.00 $20.86 11
XOM   $73.08 $9.00 $8.96 $1.60 $24.03  8
CHK   $20.20 $3.81 $3.93 $0.30 $17.58  5

The above are some current stocks that look good to me on a fundamental basis. Look at those P/Es -- nice and low at long last. The market crash has perhaps created some bargains. Another bargain may be the electricity producer RRI, which is selling well under book value - and we're going to go on using electricity I'm pretty sure. Also the railroad BNI. Railroads use much less energy to move things than trucks, and so with ongoing high energy prices they may be a good bet. So far my favorite is IBM, no longer really a computer company but more a business services company, with customers worldwide, a real blue chip.

Monday, September 22, 2008

Wall Street in Turmoil: What To Do

I'm going to resist the temptation to delve into politics and criticize the big mess on Wall Street. There's plenty to criticize but no one (in power anyway) cares what I think.

What is an individual investor to conclude from the situation? I see these things:

  1. The rating agencies who handed out AAA ratings like candy are not to be trusted. The paranoid among us note that they are paid by the issuers of securities and a good rating helps sell them. Giving a AAA rating to investment banks with 30:1 leverage ratios is clearly bogus, as a 4% drop in asset values wipes them out. Like most people, they simply thought that real estate prices would rise forever. Repeat after me: Trees don't grow to the skies. Anytime anyone asserts that a market will never fall, run for the exits.
    It is actually safer in invest in lower rated securities, assuming you have diversification as in a mutual fund. There you get a higher interest rate to compensate for the higher risk. AAA securities may or may not be safe, but you can be sure they will pay a low rate.
    Trust your own instincts as to what is safe and what is not.
  2. Now that we are into a bear market, it's time to check on asset allocation. One rule of thumb I like to use is to have a certain percentage of your assets in common stocks, declining as you get older and less able to recover from a loss. I like the rule of 110 minus your age for the percentage of your net worth in stocks. If you've been managing your asset allocation, the market drop may mean that you now have too little in stocks. In other words, it may be time to buy. How can you buy with all these screaming negative headlines? Well, that's a good sign for a buyer. When everyone is patting themselves on the back, that's the time to sell.
  3. What to buy? I've noticed that our old friend the tech stocks have taken a pretty good pounding, even though sales are holding up and they rarely depend on borrowed money. I'll be looking them over for bargains.


Thursday, September 11, 2008

Capital One gains by spurning mortgages

Interesting Dow Jones article yesterday interviewing the CFO of Capital One. They have deliberately spurned having mortgage debt on the books in favor of unsecured debt. They figure the unsecured debt is actually safer, as credit is extended on the basis of the borrower's ability to pay. Mortgages have been granted based on the security of the underlying asset, and when that falls in value, the holder is in trouble. Capital One has done relatively well in the credit crisis, and perhaps is a buy. Capital One Finance (COF) trades at about $46.