While watching the market tank everyday-many days opening high and then crashing after a couple of hours-has me down. As I said before, I thought that the worst was behind us, and I was wrong. Since I started sharing my long term picks on this site (see lower left) The S&P 500 is down more than 5%, but the worst part is that the market had jumped over 7% before losing it all and then some. This makes me sad because I feel like a optimistic dumb-ass. I lost about 15% on holding Citigroup (C) long, and finally closed out a little while ago, feeling that I might as well cut some losses. I also closed out the long position on Vale ADR (RIO), as I felt bears were swamping almost all stocks, and I'd like to preserve some gains.
However, I did add one long position to my portfolio: Wal-Mart (WMT.) As I have talked about before (See My recession article ) I think WMT is a great play when the economy is doing ugly things. While low consumer sentiment, high unemployment and even higher gas prices may seem like big negatives for a retailer, WMT is different. Wal-Mart provides really cheap, yet quality goods, which is good for people who feel the economy is doing poorly and don't have jobs but still need food and toilet paper. Also, WMT has pretty much everything you could need at one location, and so for those who don't feel like driving around on $5 gas it serves as a one stop shop. All of these bode well for WMT. They keep costs low, drive away competition because of it and when people are short on cash, look incredibly attractive when it comes to buying the necessities. They also look good to me as a company that can survive these dire times.
Showing posts with label Recession. Show all posts
Showing posts with label Recession. Show all posts
Friday, July 4, 2008
Tuesday, April 1, 2008
Tommorow Big Day for Stocks
Today the market surrrrged. The Dow Jones (DJIA) was up 391.47 points or 3.19% to 12,654.36. The NASDAQ was up 83.65 (3.67%) to 2,362.75, and the S&P 500 was up 47.48 points, 3.59% to 1370.18. Woah. Lots of numbers. Better yet, lots of green numbers. Let me summarize: the markets did work today.
However, if we're ever going to get out of the current slump, which I think we should and will do, the market is going to have to string together consecutive days of good performance. The market looks like it may be at a bottom, but if it just goes back down, were still stuck in our rut. Look at the S&P graph from Google Finance (.INX) to see what I mean.
While I'm no technician (some one who uses graphs and charts to predict the market) I do believe that using technicals can help predict how markets will perform. Looking at this chart shows me that over the past 3 months, in which the market lost 6.69%, there have been distinct support and resistance values for the S&P. You can see the 4 peaks, labelled ABCD, and the downward resistance line they create. You can also see the support line, created by the troughs EFG. Today broke this resistance. While this isn't enough to make market calls, it does show investor sentiment rose a notable amount, as prices broke trends that were keeping them in a downward spiral. Also, news from the Treasury, the extension of Fed's auction window to investment institutions, stimulus package on the way and rallying international markets make me hopeful.
The patterns here are very similar to those of the NASDAQ and the DJIA . (Check out Google Finance for their graphs.) Another thing I find promising about the charts is that one, the S&P was following a distinct trend before 2008 as well. And two, the last time the S&P broke trend, it broke support, and the market began a larger downward trend. (See above graph, the trend lines should be pretty apparent.) Now that it has broken trend again, and this time by breaking resistance, I'm hopeful we'll see an upward trend.
I'm looking at tomorrow as a sort of Grounds-Hog Day. If the market comes out, sees its shadow and dives 2%, we may be back in the rut and today was a fluke. But if we can keep this growth, and add new growth over the coming days without any unexpected bad news, I think we may have weathered the storm. Let's hope for the best.
However, if we're ever going to get out of the current slump, which I think we should and will do, the market is going to have to string together consecutive days of good performance. The market looks like it may be at a bottom, but if it just goes back down, were still stuck in our rut. Look at the S&P graph from Google Finance (.INX) to see what I mean.
While I'm no technician (some one who uses graphs and charts to predict the market) I do believe that using technicals can help predict how markets will perform. Looking at this chart shows me that over the past 3 months, in which the market lost 6.69%, there have been distinct support and resistance values for the S&P. You can see the 4 peaks, labelled ABCD, and the downward resistance line they create. You can also see the support line, created by the troughs EFG. Today broke this resistance. While this isn't enough to make market calls, it does show investor sentiment rose a notable amount, as prices broke trends that were keeping them in a downward spiral. Also, news from the Treasury, the extension of Fed's auction window to investment institutions, stimulus package on the way and rallying international markets make me hopeful.
The patterns here are very similar to those of the NASDAQ and the DJIA . (Check out Google Finance for their graphs.) Another thing I find promising about the charts is that one, the S&P was following a distinct trend before 2008 as well. And two, the last time the S&P broke trend, it broke support, and the market began a larger downward trend. (See above graph, the trend lines should be pretty apparent.) Now that it has broken trend again, and this time by breaking resistance, I'm hopeful we'll see an upward trend.
I'm looking at tomorrow as a sort of Grounds-Hog Day. If the market comes out, sees its shadow and dives 2%, we may be back in the rut and today was a fluke. But if we can keep this growth, and add new growth over the coming days without any unexpected bad news, I think we may have weathered the storm. Let's hope for the best.
Saturday, March 29, 2008
US Companies That Won't Be Hurt By a Recession
There's a lot of talk about a recession. I think we are probably in one, and to be honest, it doesn't really matter if we technically are, because our economy is suffering for sure. This spells trouble for most American businesses, because US consumers will spend less in general as they attempt to weather the economic troubles we face. The media won't help this either, because all the reports about how dismal our economic outlook is only keeps people's money closer to them, and US businesses will feel the hurt.
However, there are some US corporations which won't be hurt by a poor economic situation at home. These companies are insulated from domestic troubles by a variety of reasons. Some face huge demand from overseas Some see increase demand from citizens during rough economic times. Whatever the reason, finding a company like this and investing in it as a hedge against further economic downturns is a good way to grow your money in a time when most stocks are losing ground. Here are a few stocks I feel will not feel the recession, or may actually profit from it:
Wal-Mart (NYSE:WMT)
Wal-Mart (WMT), as we all know, is a huge chain of retail stores that sells everything from groceries to clothing. Known for cheap prices that run competitors out of business, WMT is all about price and not about quality. During rosy economic conditions, Wal-Mart sees large demand for their goods. In a recession, Wal-Mart sees HUGE demand. When consumer confidence is low and people are scared about spending money, they will search out the cheapest prices they can, and they will be willing to sacrifice name brands to do it. For necessities like clothing and food, WMT meets the demands of consumers concerned about cost. This is why Wal-Mart saw same store sales rise 3% in February, and why Analysts project WMT will grow by 12.5% next quarter. WMT will see continued growth throughout 2008, but it will probably peak in about 3-4 months, as the economic slowdown will probably begin to lessen at that point. WMT is up 8.79% from a year ago, and up 9.66% so far this year.
Caterpillar (NYSE:CAT)
Caterpillar (CAT), is the number one company when it comes to industrial, commercial and agricultural machinery and engines. CAT has the largest market share of this sector, with a $48.1 Billion market share. Last year they took in 47% of revenue from overseas, and with urbanization in China and India overseas foreign should see steady growth. This is a huge strength of CAT, it seems to be able to maneuver difficult situations here in the US because it has such a strong presence in other places.
Also, CAT provides products that few, if anyone, else can produce. Take for example the 777F, an enormous truck used in mining that can carry over 100 tons at a speed of 40 mph. No one else in the world can provide these kinds of equipment, and that's why you'd have to wait till 2012 for these bad boys if you bought today, and pay millions of dollars for it.
CAT provides little downside for investors, as it can benefit from basically any situation. Disasters provide the need for earth moving vehicles, economic growth of third world countries requires heavy machinery, and more growth here in the US also spells more demand for CAT's product. While the downside pay be low, CAT is a mature company and has less room for rapid growth than other companies. I see CAT as a low-risk play to balance a portfolio looking for a long term and slow growth winner. CAT is up 15.27% from a year ago, and up 6.24% in 2008.
McDonald's Corp. (NYSE:MCD)
The true king of fast food, McDonald's Corp. (MCD) represents today's society. Get something that's quick, pleasing, and most importantly fast. Do that, and then sell the rights to do that to other people who will do most of the dirty work themselves. Love them or hate them, MCD has it figured out. They run more than 31,000 restaurants, employ over 1.5 million people, and operate in over 100 countries. Not only that, but they do it for less than anyone. These last two reasons are why they survive a recession in the US. Because they have such a huge global market, the slowing the US doesn't kill them. Unlike an energy company that only sells the US citizens, MCD sells in most countries, and they are experiencing rapid global expansion. Secondly, the "dollar menu" looks pretty good during a period of economic decline. The inexpensive food they offer sees large demand when people have less money to spend. MCD is expected by analysts to grow 9.56% annually the next 5 years, and 10.7% this year. They are trading at a forward P/E of 17.34, with a forward PEG of 1.62. While it isn't the best value, MCD offers a steady investment when economic times are bad. This February they reported a 12% gain in same store sales. They are up 23.15% from a year ago, however they are down 5.82% Year To Date.
However, there are some US corporations which won't be hurt by a poor economic situation at home. These companies are insulated from domestic troubles by a variety of reasons. Some face huge demand from overseas Some see increase demand from citizens during rough economic times. Whatever the reason, finding a company like this and investing in it as a hedge against further economic downturns is a good way to grow your money in a time when most stocks are losing ground. Here are a few stocks I feel will not feel the recession, or may actually profit from it:
Wal-Mart (NYSE:WMT)
Wal-Mart (WMT), as we all know, is a huge chain of retail stores that sells everything from groceries to clothing. Known for cheap prices that run competitors out of business, WMT is all about price and not about quality. During rosy economic conditions, Wal-Mart sees large demand for their goods. In a recession, Wal-Mart sees HUGE demand. When consumer confidence is low and people are scared about spending money, they will search out the cheapest prices they can, and they will be willing to sacrifice name brands to do it. For necessities like clothing and food, WMT meets the demands of consumers concerned about cost. This is why Wal-Mart saw same store sales rise 3% in February, and why Analysts project WMT will grow by 12.5% next quarter. WMT will see continued growth throughout 2008, but it will probably peak in about 3-4 months, as the economic slowdown will probably begin to lessen at that point. WMT is up 8.79% from a year ago, and up 9.66% so far this year.
Caterpillar (NYSE:CAT)
Caterpillar (CAT), is the number one company when it comes to industrial, commercial and agricultural machinery and engines. CAT has the largest market share of this sector, with a $48.1 Billion market share. Last year they took in 47% of revenue from overseas, and with urbanization in China and India overseas foreign should see steady growth. This is a huge strength of CAT, it seems to be able to maneuver difficult situations here in the US because it has such a strong presence in other places.
Also, CAT provides products that few, if anyone, else can produce. Take for example the 777F, an enormous truck used in mining that can carry over 100 tons at a speed of 40 mph. No one else in the world can provide these kinds of equipment, and that's why you'd have to wait till 2012 for these bad boys if you bought today, and pay millions of dollars for it.
CAT provides little downside for investors, as it can benefit from basically any situation. Disasters provide the need for earth moving vehicles, economic growth of third world countries requires heavy machinery, and more growth here in the US also spells more demand for CAT's product. While the downside pay be low, CAT is a mature company and has less room for rapid growth than other companies. I see CAT as a low-risk play to balance a portfolio looking for a long term and slow growth winner. CAT is up 15.27% from a year ago, and up 6.24% in 2008.
McDonald's Corp. (NYSE:MCD)
The true king of fast food, McDonald's Corp. (MCD) represents today's society. Get something that's quick, pleasing, and most importantly fast. Do that, and then sell the rights to do that to other people who will do most of the dirty work themselves. Love them or hate them, MCD has it figured out. They run more than 31,000 restaurants, employ over 1.5 million people, and operate in over 100 countries. Not only that, but they do it for less than anyone. These last two reasons are why they survive a recession in the US. Because they have such a huge global market, the slowing the US doesn't kill them. Unlike an energy company that only sells the US citizens, MCD sells in most countries, and they are experiencing rapid global expansion. Secondly, the "dollar menu" looks pretty good during a period of economic decline. The inexpensive food they offer sees large demand when people have less money to spend. MCD is expected by analysts to grow 9.56% annually the next 5 years, and 10.7% this year. They are trading at a forward P/E of 17.34, with a forward PEG of 1.62. While it isn't the best value, MCD offers a steady investment when economic times are bad. This February they reported a 12% gain in same store sales. They are up 23.15% from a year ago, however they are down 5.82% Year To Date.
Saturday, March 22, 2008
Why I'm Betting Against Gold
Gold has been a savvy investor's dream since the markets’ tumble a few months ago. Not only has its priced soared, but it's a great hedge against inflation and the dive-bombing dollar. In fact, these last two reasons are probably the cause for the price increases. Many investors were (and still are) really concerned about inflation and the US dollar as the Fed furiously slashed interest rates. The increase in demand for hedges against these two risks, Gold being a classic and popular one, has driven prices through the roof. Gold Futures broke $1000 per troy oz about a week ago, from levels six months ago around $730. Futures a year ago were trading between $650 and $700. This is around a 50% increase this year.
So great, right? You see everywhere 'buy gold.' Gold has momentum. Gold still has huge upside. Gold will not only save you from inflation but you'll make a huge wad of cash on it too. Well, maybe. If the economy continues to collapse at the current rate, then yes. Gold should continue to rise, and would be a wise investment. However, I'm betting that the economy isn't going to do that. I'm betting that the market is bottoming out, and that soon the stock market will begin to recover. I'm not saying were not in a recession (I think we are) or that were out of the storm (were not) but I am sa
ying that I think the price depressions in stocks are coming to a close. The Fed's opening of lending to Investment Banks does not only help, but shows they are willing to act in new ways to help Wall Street. I'm betting investor confidence will begin to recover, stocks will flourish, and Gold will TANK.
Tank? Yes. Tank. Look what happened last week. The market surged on the Fed's actions and Investment Bank's better than expected earnings reports, (The Dow Jones was up 410.23 or 3.43% to 12361.32) and Gold fell to $919.60, a drop of $78.60 or 7.87%. Yeahh. Gold’s volatility due to investor sentiment is unmatched right now, and this is because the increases in Gold's price is largely due to fears about the economy. This makes Gold scary. Gold's price is a bubble, and like all bubble's, it has got to burst. When it does, Gold will fall big, and fast. Last time Gold went crazy, in the early 1980's, Gold peaked around $1000. (This is like $2250 in real terms.) It fell in a matter of weeks to a fraction of that. I don't want to be long on Gold when that happens.
Really, unless your chasing a short term gain, which is definitely there, I see little upside in going long on Gold. Price bubbles ALWAYS correct themselves, and there is nothing different about Gold. The forces pushing demand right now are warranted, because the fears about the economy are real. However, the legitimacy of these forces will dissipate sooner or later, and Gold will be a big, juicy bubble waiting to pop just like tech stocks in 1999 and just like home prices last year. Only go long on Gold if you think the US stock market is going to continue its slide long term, because this is the only situation in which the current forces pushing Gold will remain. Otherwise, you'll be bummed in a year when your stuck with a bunch of Gold you bought for $900-$1000/oz which is now only worth $600-$700. That’s a 33% loss. Ouch.
Exposure to Gold other than Your Grandmothers Earrings:
These are Exchange Traded Funds (ETFs.) They are a great way to gain exposure to commodities without having to actually purchase futures. Also, while futures may be hundreds of dollars, ETFs are usually similarly prices to stocks, making them affordable for everyone. Their behavior, while not exactly the same as the commodity futures they follow, are very similar, as you can see from the prices these Gold ETFs closed at last week.
So great, right? You see everywhere 'buy gold.' Gold has momentum. Gold still has huge upside. Gold will not only save you from inflation but you'll make a huge wad of cash on it too. Well, maybe. If the economy continues to collapse at the current rate, then yes. Gold should continue to rise, and would be a wise investment. However, I'm betting that the economy isn't going to do that. I'm betting that the market is bottoming out, and that soon the stock market will begin to recover. I'm not saying were not in a recession (I think we are) or that were out of the storm (were not) but I am sa
ying that I think the price depressions in stocks are coming to a close. The Fed's opening of lending to Investment Banks does not only help, but shows they are willing to act in new ways to help Wall Street. I'm betting investor confidence will begin to recover, stocks will flourish, and Gold will TANK.Tank? Yes. Tank. Look what happened last week. The market surged on the Fed's actions and Investment Bank's better than expected earnings reports, (The Dow Jones was up 410.23 or 3.43% to 12361.32) and Gold fell to $919.60, a drop of $78.60 or 7.87%. Yeahh. Gold’s volatility due to investor sentiment is unmatched right now, and this is because the increases in Gold's price is largely due to fears about the economy. This makes Gold scary. Gold's price is a bubble, and like all bubble's, it has got to burst. When it does, Gold will fall big, and fast. Last time Gold went crazy, in the early 1980's, Gold peaked around $1000. (This is like $2250 in real terms.) It fell in a matter of weeks to a fraction of that. I don't want to be long on Gold when that happens.
Really, unless your chasing a short term gain, which is definitely there, I see little upside in going long on Gold. Price bubbles ALWAYS correct themselves, and there is nothing different about Gold. The forces pushing demand right now are warranted, because the fears about the economy are real. However, the legitimacy of these forces will dissipate sooner or later, and Gold will be a big, juicy bubble waiting to pop just like tech stocks in 1999 and just like home prices last year. Only go long on Gold if you think the US stock market is going to continue its slide long term, because this is the only situation in which the current forces pushing Gold will remain. Otherwise, you'll be bummed in a year when your stuck with a bunch of Gold you bought for $900-$1000/oz which is now only worth $600-$700. That’s a 33% loss. Ouch.
Exposure to Gold other than Your Grandmothers Earrings:
- streetTRACKS Gold Trust (NYSE:GLD) 3/21 Close-89.80 (-3.36%)
- iShares Comex Gold Trust (NYSE:IAU) 3/21 Close-90.17 (-3.58%)
- Deutche Bank Gold Dbl Long (NYSE:DGP) 3/21 Close-22.44 (-7.46%)
- Deutche Bank Gold Dbl Short (NYSE:DZZ) 3/21 Close-27.66 (6.59%)
- PowerShares Gold (NYSE:DGL) Fri Close- $33.92 (-3.28%)
These are Exchange Traded Funds (ETFs.) They are a great way to gain exposure to commodities without having to actually purchase futures. Also, while futures may be hundreds of dollars, ETFs are usually similarly prices to stocks, making them affordable for everyone. Their behavior, while not exactly the same as the commodity futures they follow, are very similar, as you can see from the prices these Gold ETFs closed at last week.
Tuesday, March 18, 2008
The Credit Crunch
So the market is tanking. Bear Sterns got sold for a fraction of its value, the economy seems destined for recession and the Fed is cutting rates left and right. The problems which at once seemed only to affect home builders and those heavily involved in sub prime lending has stretched into the main stream financial institutions which provide the liquidity our market desperately needs to survive. SHIT.
Couple this with the dropping yield in Treasury's (10 yr T-Bill at 3.48% as of 3/18), diving US Dollar (.639 EURO as of 3/18) and most money market funds yielding less than 2%, it seems to be a terrible time to invest. However, the economic trouble we are now facing present unique opportunities for those who have some money to invest and some balls to go with it. Here are some opportunities I see for investment:
Financial Services
-This may seem strange, but as long as you have faith in the US government, that rational investors will eventually take hold of the market and that the banks are being fair with their reports to us, the large financial institutions are quite undervalued. A few I like:
Couple this with the dropping yield in Treasury's (10 yr T-Bill at 3.48% as of 3/18), diving US Dollar (.639 EURO as of 3/18) and most money market funds yielding less than 2%, it seems to be a terrible time to invest. However, the economic trouble we are now facing present unique opportunities for those who have some money to invest and some balls to go with it. Here are some opportunities I see for investment:
Financial Services
-This may seem strange, but as long as you have faith in the US government, that rational investors will eventually take hold of the market and that the banks are being fair with their reports to us, the large financial institutions are quite undervalued. A few I like:
- Goldman Sacs (GS)- GS is the largest firm within the Investment Services industry with a 69.38 B marketcap. It traded mostly above $200 in 2007. Earnings released today of 3.32 per share destroyed expectations of 2.58 per share showing that GS is doing better than the gloomy wallstreeters thought. GS has a forward P/E ratio of 10.35 and a forward PEG of .89. While the upside of GS may not be as high as others, the risk is defiantly lower. I look for GS to settle at $200 by the end of the year
- Citigroup (C)- C is one of the largest firms within the Money Center Banks sector. It has a marketcap of 108.21 B and has fluctated around $45-$50 for the past 5 years. As of 3/18 it was trading at $20.71, down 38.64% from 5 years ago to date. Citi may have more exposure to sub prime losses, but it has enough reserves to weather the sub prime storm and emerge with lessons learned. Currently forward P/E is 10.68 and foward PEG is 1.12. There is a 169.4% Growth Estimate for this year, and 79.4% Growth Estimate for next year. This bodes well for C. Potentially the best part about Citigroup is how cheap it is currently, and how far off its pre-crumble price it is. At just over 20 dollars, C is affordable for anyone. If it returns to $30, it will be a $10 increase, a 50% gain. If it returns to 40$, its a $20 gain and a 100% return. I look for C to hit $30 by the end of the year.
Mining
-Mining presents a solid opportunity for stocks that have potential for growth and no exposure to the current troubles within the credit market, other than investor sentiment. Mining companies are constantly merging, so being up on these stocks can make you some bankkk.
- BHP Billiton ADR (BHP)- BHP is a diversified resource company. It is a South American company that operates mines in Austrailia, southern Africa and Latin America. It mines resources used for energy as well as steel, iron ore and magnesium. It has a market cap of 192.07 B which ranks it first in the Metal Mining sector. It currently has a forward P/E ratio of 12.94 and a foward PEG of 1.5. While it may seem like BHP is a little overpriced based on these numbers, I expect earnings estimates to be topped for two reasons. One, BHP has a huge potential buyer in China. China's energy demand is huge and growing, and BHP is set to cash in on this. Secondly, South Africa's demand for coal has exploded. South African government has dedicated itself to increasing energy production, and it has chosen to increase coal imports 50% just this year. BHP has homefield advantage and will see much of this increase as increase in demand for their coal. I look for BHP to hit $80 in a year.
- Vale ADR (RIO)- RIO is also a resource company. It's located in Brazil and operates mining interests in aluminum, precious metals, copper, nickel and iron ore as well as others. It also operates some hydroelectric power plants. RIO offers a huge potential for growth. Its a small and quickly growing company that is seeing explosive growth and huge potential. It has a forward P/E of 10.9, forward PEG of .43, as it is expected to grow at a rate of 25.4% for the next 5 years. With increasing energy costs, expanding emerging market demand and many new investments, the long term prosepect of RIO is glowing. I look for RIO to hit $40 by June, and once the market recovers and investor confidence returns, for RIO to push $60.
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