The recent stock selloff produced not only a downdraft in prices, but a large amount of commentary that warned investors of the dangers of investing in this market. While some of the observers are more dire in their predictions than others, most of the market commentary is on the negative side. On the other hand, many long-term investors may find this is a market in which to carefully look for value.
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Market Not So Simple
In pointed commentary by hedge fund manager, Simon Baker, he took issue with legendary Vanguard Group founder, Jack Bogle's traditional "buy and hold" approach. Barker suggested, in no uncertain terms, that he felt such a strategy was part of a "bygone era," when the economy was more stable. Peter Schiff, CEO of Euro Pacific Capital, went much further, maintaining we're in a "depression," which has been "interrupted" by the Fed, with likely further stimulus to be the coup de grace. Less strident, but still pointed, was commentary which pointed out the kind of volatility we're seeing in the markets is hardly the stuff of bull markets. That said, some commentators did admit there will be those investors looking for long-term opportunity.
Look For Value
This isn't the place to debate the merits of buy and hold, nor the accuracy of Schiff's depression position; suffice it to say there are those who are value investors who've always worked around both the denunciatory rhetoric and the extreme commentaries, and done what they do best: find good investments. With the market climate very pessimistic, fundamental value investors can scrounge around and look for bargains. Even though value investors will likely strongly disagree with the extreme nature of the assessments, one thing to take away is a healthy caution when looking to invest in anything. That's simply another way of saying pick stocks carefully, don't buy indiscriminately.
Even after the market has rebounded from the worst of the sell off, there are certain stocks among the boring blue chips that look good. 3M (NYSE:MMM) is one. The Dow component with diverse businesses and new products still turns in strong earnings, sells at a PE of 14 and its stock price is at the lower spectrum of its 52-week range. Caterpillar (NYSE:CAT) is another. Though the market questions how much it can keep growing at the present pace, Caterpillar's expansion in China and its prospects in emerging markets are likely to keep it growing. Its stock trades in the mid-range of its 52-week high and lows.
Many of the industrial and material companies were particularly beaten and now shunned. Observers see the global economy, with industrial and manufacturing, slowing down dramatically, some already see recession. So to be conservative, investors can shave down earnings estimates. Aluminum company Alcoa (NYSE:AA) trades at over 14 times current earnings, and its stock price has retreated, yet looks promising.
You needn't stick to looking only at industrials of course. Beverage giant Coca Cola (NYSE:KO) remains a leading company, and while its stock price is hovering close to its 52-week high, it trades at roughly 12 times earnings. Yes, there are challenges with rising commodity prices which Coke and other food and beverage companies eventually have to pass along, but so far profitability is intact. Pepsico (NYSE:PEP), snack and beverage company, trades with a higher multiple but its stock price is much closer to its 52-week low. Shifting to major oil company, Conoco Phillips (NYSE :COP), its stock price has been driven down into the high $60s and trades at a PE of 8.5. While global oil prices have retreated recently, it's hard to see that as a permanent situation.
The Bottom Line - Investors Should Do More
The mention of these companies is merely a beginning for an investor. Any investor should dig into the financials and the prospects of a potential investment, and yes, pay some attention to the general market and economic climate as well. Knowing the context of what you may be getting into is important, too. (Dividend capture strategies provide an alternative investment approach to income seeking investors. Check out How To Use The Dividend Capture Strategy.)
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