Some rambling.
My quant friends tell me that consumer, financials, and tech stocks screen most attractive right now.
I have not been buying financial stocks because I don't know enough about their business models, and am not able to distinguish between the models that are broken and those that are merely dented. Too many negative surprises keep emerging from credit and derivative markets, instruments I've never heard of and that are suddenly called toxic after being rated AAA just moments before, so it is not a place for me.
However, I have started buying some consumer and tech names. Mostly smaller-cap companies who have stumbled so the stock prices are down -50% or close, with foward PEs under 10X, where I think the business model is not broken and earnings will still grow in 2008. I've only bought a little, hoping I'll get a chance to fill up at lower prices.
Larger-cap stocks in the consumer and tech sectors have for the most part held up, so I am not too interested in buying. I've also sold most of my NDX long.
The last couple months have been pretty awful for small and mid-cap stocks. Traditional (long-only) investors are on the sidelines, not willing to buy and risk losing money just in time for fiscal year-end, if anything they have been selling for tax loss and window dressing. Hedge funds have dominated the trading and they have been playing for the very short-term, 'till year-end. Value investors are not stepping in, they are patient and generally pessimistic, so they're waiting for even lower prices. Investors generally have been favoring large-cap stocks, for more international exposure and stronger business models, plus they are harder for hedge funds to move around. So a quarterly miss and trimmed guidance sends a small stock down 20% overnight and it doesn't find a bottom, just keeps going down relentlessly.
I think - hope, speculate, whatever - that this market is making some names way too cheap, IF we do not have the global recession scenario.
When I can buy a solid company that will grow earnings >10% even in a weak 2008, at <10X PE and in some cases near 10% FCF yield, where the stock has already been nearly cut in half, seems like the odds are good enough to make at least a small bet.
Quote:
Originally Posted by turbo6bar
I admit I was a bit wrong regarding the housing bubble. There wasn't a housing bubble. It was a credit bubble. I do not believe equity markets can make meaningful moves until credit woes are fully disclosed. Big heads state the climate hasn't been this bad in decades. It's worrisome considering the worst may still lie ahead.
I do not have coins enough to play in the credit markets. Some good deals may actually be present. I'll pass on equities, for now. I want to see capitulation there first.
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