It may be time for dow not for s&p
I write like I talk and most people don’t understand me but here goes.
The dow components have low future earnings estimates and are trading at 10 times future earnings. Many of the S&P retailers are trading at 15 times future earnings estimates. The estimates are a fairly high. A year or two ago they traded at more than 15 times earnings because the market had been on a 20 year run. Optimism will not be high enough for more than 15 times earnings. If the stocks trade at rate of growth times earnings ….look out. Even if they become valued in the same way as the dow conglomerates they will go down considerably.
We keep hearing that the S&P goes up at least 20% at the end of the down turn. Well they have already done that and we are still turning down. They have toped out and seem to only be able to go down. It seems they think things will bounce right back to were we were in 2010.
The dow components are so conservatively priced it is amazing. They expect a bad 2009 and are price to grow even in a bad environment. We all expect a better 2010 but the dow components seem to be priced for slow growth (that is good conservative thinking).
I do not own any S&P stocks but I do have a heavy short sell on one well known specialty retailer.
My “trading” portfolio is up 69% using this premise and from knowing the baseline for the dow (right now I buy when the dow is Below 8500 and sell above 8800). Also I was lucky enough to get out of the market in March of 2007 and just got back in a few weeks ago. My retirement account is up 25%. I just loded it with GE Dupont and Ford a few weeks ago. But I did sell half my ford at 3.40.
I still think the dow is worth getting into and if you can get a dividend you can afford the stocks to go down a little. The up side is a 50% chance of 30% up in less than a year. The down side of good dow stocks is not that bad (in my opinion).
Some people will wait till the dow runs up for 3 months to get in. They believe in what they see. They see a upward slope for several months and they get in. Why wait till the dow gets to 11000 to get in only to find the economy isn’t going to grow as fast as they thought and it losses 1000 or two. The stock market already knows about the layoffs and the problems but expects things to bottom out later in 2009. If you think 2010 will be worse than 2009 then stay out of the market. If you think the market can’t handle the bad reports to come out in the next few months then stay out. I say buy only good dow companies, although some still have a way to drop for example I think Corning will drop to 7.7 or even 5. Don’t bet the farm on anything I am still heavy in cash. But I think it is safer to buy quality stocks now then it is to wait till they are near their tops.