Thanks to the two readers that posted comments - my response to your comments is/will be posted after your words in the same post you commented on.
Another up day today led by those stocks that got this rally started - anything with exposure to the consumer. Thursday will be a very busy day with a lot of data for the market to digest, and will shed some further light on both inflation and housing. As I mentioned yesterday, the data do seem to point towards tame inflation figures, and I would expect CPI to mirror this trend. The housing data that comes out at 1:00PM EST is the one I am most focused on, as it will measure the depth of the housing slowdown along with Friday's housing starts data. If there are any negative surprises in any of these numbers, look for a sharp sell-off. If there is good news here, I think the market may have it priced in already - no sharp run-up to follow. In fact, I would even suggest that if both numbers come in "at expectations" we move lower.
Airlines made significant noise today with potentially the start of the wave of consolidation. My advice on airlines as an investor is very simple. Never, under any circumstances, buy shares of companies that operate in this god-awful industry. The airline industry makes the automotive industry look good, but serves little other purpose from an equity investment perspective. The economics are terrible, with unions involved, substantial exposure to oil prices, massive operating leverage (and in most cases, financial leverage layered on while funding operating losses), and generally overcapacity since Uncle Sam refuses to let the weak players die when there is the routine bankruptcy filing. As Sir Richard Branson has been quoted as saying, millionaires have been made when billionaires buy airlines. Don't put good money to work in this industry hoping to find the next takeover target - you might actually get stuck holding a dog.
Wednesday, November 15, 2006
Tuesday, November 14, 2006
Thoughts After the Close on November 14
Another day, another rally. Very pleased that the data seem to indicate that inflation does not seem to be creeping in, as this is bad news not only for the market but for almost all participants in an economy. I would tend to agree with St. Louis Fed Prez Poole when he sparked today's rally by stating that the Fed's current interest rate policy is "about right" - holding inflation at bay without cratering economic growth seems to be happening.
Did manage to limit into Capital One Financial (COF) at the open today, I paid $77.50/share. Not happy to be down on the first day of the hold in an up market, but I still feel good about the price that I paid. As I have mentioned in my past few posts, finding a value in this market is difficult, and COF at this price is cheap. I will hold COF until it hits the $95.00/share range, barring any dramatic change in future prospects.
In this market there are not many quality bargains, but there are some cheap stocks. The seemingly cheap stocks that I have steered clear of are those of the home builders. It has never bothered me to buy shares of a company that has been written off and left for dead, but there is way too much uncertainty here. If today's Home Depot (HD) news is indicative of where we are headed, the home builders should be cheap.
On this note, it seems to be a forgone conclusion that the downturn in housing will not dampen overall economic growth as much as once thought - I am not sure yet that this will be the case. While the majority of the speculators may be gone, where I live in Orange County, California, there are plenty of houses that have been built that are still sitting empty. Granted, this was a very hot market, but this would lead me to believe that prices have not yet levelled off to match available supply with demand. This is important because the wealth effect attributable to an increase in home equity is very powerful - thus, it would seem to make sense that the inverse would be true. In a market with falling prices, consumption will slow. It is this thinking that drove my decision to sell my consumer holdings and wait for a selloff to put the money back to work.
Good luck in the markets on Wednesday - please drop me a note with any stock ideas - I would be happy to write them up in my next post.
Did manage to limit into Capital One Financial (COF) at the open today, I paid $77.50/share. Not happy to be down on the first day of the hold in an up market, but I still feel good about the price that I paid. As I have mentioned in my past few posts, finding a value in this market is difficult, and COF at this price is cheap. I will hold COF until it hits the $95.00/share range, barring any dramatic change in future prospects.
In this market there are not many quality bargains, but there are some cheap stocks. The seemingly cheap stocks that I have steered clear of are those of the home builders. It has never bothered me to buy shares of a company that has been written off and left for dead, but there is way too much uncertainty here. If today's Home Depot (HD) news is indicative of where we are headed, the home builders should be cheap.
On this note, it seems to be a forgone conclusion that the downturn in housing will not dampen overall economic growth as much as once thought - I am not sure yet that this will be the case. While the majority of the speculators may be gone, where I live in Orange County, California, there are plenty of houses that have been built that are still sitting empty. Granted, this was a very hot market, but this would lead me to believe that prices have not yet levelled off to match available supply with demand. This is important because the wealth effect attributable to an increase in home equity is very powerful - thus, it would seem to make sense that the inverse would be true. In a market with falling prices, consumption will slow. It is this thinking that drove my decision to sell my consumer holdings and wait for a selloff to put the money back to work.
Good luck in the markets on Wednesday - please drop me a note with any stock ideas - I would be happy to write them up in my next post.
Monday, November 13, 2006
Thoughts After the Close on November 13
Still waiting for the market to have even a mild selloff. Exited my position in Fortune Brands (FO) at $80.00/share today - not quite the 52-week high I mentioned in my last post, but close to it. While I think FO has solid businesses that are worthy of owning, it is no longer a bargain as it was this summer at the sub $70/share range.
One bargain among the financials has popped up in my valuation model, which I will hopefully limit into tomorrow at $77.50/share. Capital One Financial (COF) is cheap at less than 10 times 2007 earnings, a good value play. S&P has it rated as a four-star buy, Morningstar has it rated as a three-star hold, both as of November 13. Cramer commented on the shares today in a market update segment, suggesting the shares would move into $90/share territory.
One other potential bargain that bears watching is Washington Mutual (WM), which I would buy more of if it were to dip to $41.00/share or below. Washington Mutual is a solid bank with a very attractive yield at nearly 5%. I have held WaMu for nearly five years, and have also been a customer there for nearly as long.
One bargain among the financials has popped up in my valuation model, which I will hopefully limit into tomorrow at $77.50/share. Capital One Financial (COF) is cheap at less than 10 times 2007 earnings, a good value play. S&P has it rated as a four-star buy, Morningstar has it rated as a three-star hold, both as of November 13. Cramer commented on the shares today in a market update segment, suggesting the shares would move into $90/share territory.
One other potential bargain that bears watching is Washington Mutual (WM), which I would buy more of if it were to dip to $41.00/share or below. Washington Mutual is a solid bank with a very attractive yield at nearly 5%. I have held WaMu for nearly five years, and have also been a customer there for nearly as long.
Saturday, November 11, 2006
Thoughts for the week of November 13
The market does look slightly overbought, with very few bargains out there currently. Anything consumer has had a nice run over the past few weeks with the drop in prices at the pump, but the downside outweighs any additional upside here. One of the few areas where valuations are reasonable is energy - any dip in oil to the $55/bbl range may make for a good entry point into some of the big oil names, either short or longer-term, as I believe the days of $40/bbl oil are long gone. One of the best values here is Conoco-Philips (COP).
As a result of the run-up of the past few weeks, I have been moving into cash, selling as new 52-week highs had been established on some of my holdings. Additionally, I have a short on YHOO (a bet on a few things - first, the valuation of YHOO, which has "all that can go right, will" baked in, and second, the market in general being overbought). I need a 5-10% correction before I put any money back to work before the end of the year - until this happens, I will be shorting some of the consumer and tech names that have run up.
As a result of the run-up of the past few weeks, I have been moving into cash, selling as new 52-week highs had been established on some of my holdings. Additionally, I have a short on YHOO (a bet on a few things - first, the valuation of YHOO, which has "all that can go right, will" baked in, and second, the market in general being overbought). I need a 5-10% correction before I put any money back to work before the end of the year - until this happens, I will be shorting some of the consumer and tech names that have run up.
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