The housing industry is demolished. Look at USG, look at OC, and look at high quality lenders like Wells Fargo and USB. Look at the US land drilling industry, scraping along in many cases at multiyear lows. There may not be any obvious reasons why any of this should change anytime soon, but so what? We are buying stock, not options. The prices of homes is in reverse, why is there any need to buy before a bottom is obvious? If the trend reverses it will be for multiyears not for a short period of time. Banks in times of stress can fall some incrediible percentages, I even like Wells Fargo of the banks but until all the bad loans finish I am willing to let prices recover and lose the early gains rather than risk a 50 percent loss. ONe good sign though was a new low today on many financials that was reversed at the end of the day. Should that low hold over the coming month I would take that as a good sign for the banks, but it is still way too early to judge that.
Look at the major drug makers-Pfizer is yielding 5%, and though it may not have visibly bright prospects, this is one of those black swan businesses and here we would be entering very cheaply. Pfizer is coming off of patents and will have a loss of patent protection on 18of 48 billion of their sales. Pfizer in the meantime is pouring money into research and buying their own stock back. Right now the dividend is 57% of earnings and historically Pfizer has paid 33% of earnings. Future growth prospect of the dividend is subpar. Price will depend on whether Pfizer has blockbuster drugs come out of research. So I do not think the stock is cheap - it is a play on whether you have confidence in the new management. Earnings growth by Value Line is estimated to be only 2 percent over the next five years so you have a PE of 12 which reflects those limited growth prospects.
.Look at retail- many of these outfits have some real warts, but they are pretty cheap- including companies like Wal-Mart and Target. Walmart at a PE of 14.7 and growth prospects on dividends and earnings of 10 percent is a decent investment but not a dirt cheap one, certainly the best in my mind of all mentioned so far. Target as recently as October was up 15 percent on the year and now they are announcing weak sales on their high-margin items. Now they are planning on borrowing money to buy up to 10 billion in stock back. A horrible strategy in my mind how does that help their business? It only helps their option holders in the management ranks. Since the stock has just very recently disappointed and is only off a small percentage from the start of the year I do not see this stock at all as a compelling once in a decade type of stock.
So I feel like the high flyers have a lot of falling to do, but not so some of these others. It is analysis intensive though.
I know I would far rather own well chosen stocks today than long term governments or any bonds. I think many stocks are also more attractive than most commodities and certainly gold.
Even if the US is going to hell in a hand-basket, there will be lots of viable businesses serving the hell and hand-basket space.
Ha
