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October 2008



My investing in the next year - Invest in companies with low debt!

October 12, 2008 – Comments (1) | RELATED TICKERS: AAPL , PKX , AMAT

It has reached the point where all the major news stations are talking about how 401k's are disappearring, many coworkers are talking about their losses in retirement funds, and people are calling into radio talk shows about pulling out of investments.

This is a sign of a change in the markets, I think. When everyone is talking about how bad things are, and all the major politicians are saying that we are going into a big recession that will continue for many months, and everyone is expecting the market to keep plunging - that's when things will start to change.

Right now I am starting to make small investments based on a couple thoughts:

1) Dollar currency will depreciate more in next year. The US is taking it upon itself to save the world by spending money - what did I just hear today, that Paulson is now changing plans to just buy bank stock instead of dealing with the toxic paper - WTF? Sounds like we are now bailing out his buddies and wall street without fixing any underlying problems. We are just starting to spend the dollar. Interestingly, it seems like we can continue to take on debt as people have fled to treasuries with almost 0% interest rates for the government debt. So, I highly expect spending to continue in the next 6 months. Not all world currencies will also depreciate, some like Yen will do just fine I think. Euro will go down like the dollar.

2) Some stocks are cheap and good investments. This is a panic now, and there are good companies that will make it through this mess. US companies that are involved in manufacturing equipment to help build emerging countries megacities are good investments. US companies that make equipment related to building and repairing roads, water, power or other infrastructure that will be invested in by the next president as part of a stimulus package are good investments. Asian car companies are good investments (but not the US Ford or GM). Green power is very risky at the moment. Mining and resource stocks are very risky at the moment(I wouldn't invest in these anyways).

3) Companies that have lots of cash flow, and very low debt are very very good investments. Any company with large debt ratios will be dragged down over the next year. For any stock, look at the debt ratios - I am willing to bet that this will be the key indicator for performance of the next 6 months.

4) Credit will thaw at some point in the next 3 months. Things will start to get better, though I think credit will still cost more than it has in the last decade. Companies with debt will have higher costs.

So, what I think are examples of good investments at this moment:

  1. AAPL (Low debt, low PE for a tech stock, good company)
  2. PKX (Low debt, low PE, and resource costs have fallen - buildings still need to be built)
  3. AMAT (Low debt, involved in solar and basic materials for electronics)
  4. GLW (Low debt, dividend, and great company)
  5. TM (this has a high debt, but not as bad as GM or Ford - and China has been building extensive roads - what cars do you think will sell in China? Also has a nice dividend)
  6. CEF (To protect your savings, consider a stake in this gold and silver trust).

Possibly good investments if they get even cheaper:

  1. GOOG(No debt, could finance any project - but speculative I still think)
  2. GILD (No debt, good drug research company).

My poor choices of the last year - though I think MTW and VOD will improve:

  1. MTW (Great company, but high debt now)
  2. SCUR (High debt)
  3. VOD (high debt)

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