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.
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2 comments:
I don't have a specific stock in mind -- well actually I do. I bought JWN about this time last year, and then sold after the holidays. Do you have any thoughts on this, or a similar up-scale seller. I bought COH at that time also, but am leary of it at the moment?
Sincerely.
Thanks for the note - I think you are right to be leary of Coach (COH), it set its 52-week high today, and according to my model, is fairly priced. Nordstroms (JWN) is the slightly better buy at this stage if I had to choose between the two, but it has also enjoyed a nice run-up, also near its 52-week high, and is also priced near to where it should be. I think the key question to answer in both names is how much upside is there here? In my opinion, not too much - I think there is more downside risk here on any bad news that rattles the markets. That all said, I think Coach in particular is a very well-run company, and one that is worth holding for the longer-term.
I will have a look at some of the other players in upscale retail, and will write on it Wednesday.
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