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I think the market is still undervalued.

Recs

6

March 12, 2009 – Comments (5)

Until the major S&P stocks are trading at P/E ratios of 10, I think we are quite undervalued and have a ways to rise.  GE should trade at least over $15/share-20/share, MTW should trade $9-15/share, GLW should trade $15-20/share.

For these stocks that is still a 50% gain to be at least remotely fair-priced.

The yields on corporate debt are crazy high right now too - those have a ways to fall.  

I have about $3000 still to put into my IRA this year, I'm hoping things stay beat-down a while still this year buy into bonds.  Over time, I'd like to start building a corporate bond ladder like TMFdeej.  My risk tolerance level is still fairly high after a rough start to my investing back in January 2008.

Over this year, I think we will see a rebound in consumer spending - which I think is already happening.  Just from watching here in Alabama, I see lots of people out shopping right now in the earliest months of spring.  That's a good sign.

Oil/commodities should start to recover this year too.

Basically - we went through a period where people became generally frightened.  When you can't say when the market will stop falling - that's downright scary.  The markets in general have become quite strange over the last two years.  Commodities went up through the roof - then hit the floor.  Now treasuries are up through the roof - they'll hit the floor eventually too.  

 I think corporate bond prices will be the next bull market - since the yields are so high right now.  Once indicators make the economy look less shaky, the yields will fall - I think this will be happening by 2010.  The market won't really recover until the yields in corporate bonds have fallen a lot.  

 I doubt that we will be above 11000 on the DOW in 2011, but I also doubt we'll ever see 5000 on the DOW.  I think 6500 was The Bottom, or is in the neighborhood of The Bottom - if there is a retest.  The decrease in risk in buying equities will feed upon itself and things will start to go up.

 Fundamentally, the United States is not built on debt, is not built on consumer spending.  These might be prevalent trends from the 90s-2010, but this country is one of innovation.  We've just hit a big hic-up this last 15 years with massively changing factors.  The internet revolution + rise of cheap manufacturing in other countries were destabilizing factors.  Before the first world war, there was a similar rise in globalization that destabilized the world too.  Things recovered after the world war and there was a tremendous rise in the economy.

 Anyways, I plan to keep saving my money, to keep investing in companies - but I am going to start to diversify from owning just stocks into owning bonds.  Over the next 20 years, I hope to have a near equal amount in stocks and bonds (a very conservative portfolio), so that the next time the stock market falls apart, I won't have such a bad impact on my savings.

 But, things will keep getting better, that I am still sure of.  We'll have an interesting century - as billions of people will be getting empowered and start playing a role in the global economy in both India and China.  These countries can't be held back - the US will eventually be a much smaller voice in the global world.  (Which is why I am trying to learn Mandarin).  India's more tricky, there are so many languages/dialects - I guess some dialect of Hindi might be useful.

 Anyways - good luck everyone, wish you the best. 

 -Rof 

5 Comments – Post Your Own

#1) On March 12, 2009 at 10:56 PM, Josher429 (< 20) wrote:

Good analysis.  You earn my rec point.  To play devils advocate couldn't the current P/E ratios be high if earnings have tanked?

Couldn't you be paying a premium on a stock whose share price has declined?

 

 

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#2) On March 12, 2009 at 11:23 PM, Option1307 (29.91) wrote:

Fundamentally, the United States is not built on debt, is not built on consumer spending.  These might be prevalent trends from the 90s-2010, but this country is one of innovation.

Yes, but no...

We currently are a nation that is built on debt, lots of it might I add and there is no possible wat for us to reduce the amount without defaulting or massive inflation. You ae correct that fundamentally we are a nation built on innovation, but that is in the past unfortunately. Be careful in your positive outlook.

Nice take though, good thoughts.

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#3) On March 12, 2009 at 11:32 PM, JibJabs (94.00) wrote:

Good luck on the Mandarin- I'm going to China in a couple months hoping to do the same. Do you know of any good learning resources, like a CD with audiotape or something?

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#4) On March 12, 2009 at 11:43 PM, EnigmaDude (98.01) wrote:

I'm aligned in your thinking and have also been slowly buying a few shares of high yield corporate bond ETFs (HIO, CFT, CSJ) and some dividend paying stocks and ETFs (ETY, UTF) in my Roth IRA for a combination of growth and income with a level of safety built in.

And I also agree that we might all need to learn Mandarin in a few years!

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#5) On March 13, 2009 at 12:19 AM, rofgile (99.34) wrote:

 

Josher429 -  It is true that for some companies earnings will likely stay flat or decrease in 2009/2010.  Not for _all_ companies though, and the market is still pricing most companies as if earning should decrease.  Some companies are also tackling debt and debt market issues.  These will get better over time by 2010.  One of the companies I watch, MTW, has had its earnings really decrease since 2008.  However, this is due in a large part to them paying down debt that they got from buying the Enodis corporation.  If they pay down the debt, make it through 2009 - their earnings should go back up a fair amount, because they will also be having the billion-a-year earnings of Enodis to add in on top of the cranes business.  So, their P/E ratio should eventually be falling unless the stock price rises.  GLW, their earnings will stay flat or fall - unless consumerism and TV shopping start to go up.  I am still betting that people will start buying flat screen TVs in force over 2009-2013, because we are switching to digital tv and that will create a demand.  - Car companies have terrible earnings now.  But people are only putting off buying cars.  Eventually, people will start buying cars again - earnings will rise.  

 I guess what I am arguing is that right now people are putting off their spending and saving.  But, eventually they will return and start buying all the things that they put off buying.  So if you invest in companies that make the items that people are waiting on buying, and can invest in these companies at cheap prices - you will probably get a good return.  Buying companies with some cash buffer and low debt is a good idea for safety, because we don't know how long the downturn will last. 

JibJabs - I really like the Pimsleur Mandarin I, II, and III set.  I am also trying to learn written traditional chinese.  For the written language, I just pick up lots of used language books.  Check used bookstores in big cities - you'll probably find a couple of cheap written language books on traditional chinese  (doesn't matter if they are 20 years old, if you can learn from them).

 The Pimsleur Mandarin audio tape set is really expensive - though I've heard rumors that you can download it with some program called bittorrent - but you might have to look into that yourself.

   

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