Charles said:
And, we try to buy low, when the bloom is off the rose, and everyone else is avoiding a sector ...
Charles, I'm going to guess that you're a value investor who's not really interested in growth stocks, momentum, technicals, or options.
But this is a stock-picker's market, and if you're unable (or unwilling) to put the time into the research then you shouldn't invest a dime... or you should invest it with others who have a track record.
For example you've probably passed over the world's 10th largest mutual fund-- Berkshire Hathaway. It's currently trading at a 30-40% discount to intrinsic value. It's been dinged by natural disasters but it's raising its supercat premiums by an obscene amount-- 25-40%-- to reflect the industry trend of recovering capital after a bad year. Consolidation will drive out the marginal performers. General Re is one of the few insurers with a AAA rating and its principal has decades of experience. Buffett's stash also puts him in the enviable position of being able to make a quick cash offer (discounted, of course) to close deals that would take other companies months. Bill Gates just bought 100 of the "A" shares and perhaps you could buy the same percentage in your portfolio.
Brewer has identified a similar opportunity in standalone small-cap reinsurance companies. Cruise through his old posts and do your own due diligence but there are some good opportunities out there.
Tweedy, Browne Global Value (TBGVX) is closed to new investors but will reopen when they find more value investments for their 20% cash stash. Keep an eye on them while you're keeping your cash in CDs, and read their website's value-investing library.
Nortel (NT) may be finally coming out of the woods. Their latest CEO (the third in as many years) actually has industry experience and has been sweeping out the old to bring in his team. Of course I've been waiting for this blessed recovery for over a year so do your own research.
Retailers will go through a small dip this month. Wal-Mart (WMT) is about to report that their holiday sales fell in the low end of their prediction. The herd will dump retailers, the sector will drop a few percent, and by February the sector will rebound when it'll turn out that all of those gift cards (not counted in December's sales figures) were redeemed in January for blowout sales numbers. I wouldn't be surprised to learn that Buffett has been buying WMT to make up for his 1990s oversight.
CostCo (COST) is another retailer with a widely-acknowledged employee benefits program and the industry's lowest turnover. They pay a nice dividend, Charlie Munger sits on their board, and they've been expanding their loss-leader gasoline sales because of all the customers it drags into the store. They make a great cheap pizza, too. Watch the stock for the next few months and buy on dips. Anything below $45 is nice and below $40 would make me dump other losers to buy more COST.
Tate & Lyle PLC (ADRs trading as TATYY) makes sucralose, the only naturally-derived low-calorie sweetener that doesn't degrade at high temperatures (in the baking oven). Their stock was up over 20% at one point but has eased and may even be oversold. Their patents are strong, a new factory is on schedule for early 2006, EU sugar subsidies broke in their favor, major food companies are buying Splenda like crazy, and this British company will benefit from a declining dollar. It also has a nice dividend payable this week.
Home Depot (HD) & Lowes (LOW). Buffett's been buying HD and is probably going to keep on buying. As the housing market cools people will continue to renovate their homes (especially insulation!). Whole TV cable channels (Style, HGTV) are devoted to teaching us all how to spend more money renovate our homes for better value. I think that products have become easier for homeowners to select & install on their own and will continue to expand as DIYers cut the contractors out of the loop.
Fanatic value investors pay attention to overvalued stocks as well as undervalued ones. Many financials are overvalued after years of interest-only mortgages and other leveraged debt products. If the housing market collapses or some other catastrophe pushes homeowners into mortgage default, companies with a high percentage of IO mortgages will get hammered. Another short-selling favorite of mine is Abercrombie & Fitch (ANF), whose CEO is one of the few remaining unindicted jerks. Wait until it peaks & flattens ($65-%70), go short, and wait for him to implode. I'm thinking Enron, Krispy Kreme, & Taser all over again. WebMD (WBMD) and Herbalife (HLF) may be there already.
Intel (INTC) is finally recovering from TH's retirement. Their brand is undergoing a huge overhaul and they just
got a number of pages in Business Week. Read the article and decide for yourself, but I'm intrigued by their oversold volume and their price breaking below its long-term moving average. There'll be buying opportunities in the next six months.
If you don't want to take on single-stock risk, look at sector ETFs. I've been happy with the S&P600 small-cap value ETF (IJS). It just juggled its indexing method this month to better reflect value stocks (as well as reduce turnover). It also pays a modest dividend which Fidelity reinvests for us at no charge. Another quality ETF is the DOW Dividend ETF (DVY). ETFs aren't such a good deal for DCA investors but their ERs are a bargain when purchased in five-figure amounts.
Finally, renewable energy. I've identified a trend but I haven't done my due diligence yet, so the rewards await your efforts. I've been tracking the prices of photovoltaic solar panels for the last year. Bargains abounded at $3.50/watt in 2004 but have easily doubled since then. Federal RE incentives have just kicked in (as well as other state incentives like NJ and global subsidies like Germany & Japan) so the entire industry is getting a govt kick-start this month. The suppliers I chat with are selling faster than they can ramp up production, and contractors are scrambling to buy inventory before it doubles in price again. $7/watt is considered a great price today if you can find it, and I bet we'll be seeing $10/watt by summer. Nov/Dec will explode in a frenzy of late-year tax planning. The trick is finding a company that doesn't just make PV panels as a tiny sideline. I don't have any answers yet but Evergreen Solar (ESLR) is on my "to research" list.
Similar demand is being subsidized for hybrid vehicles and home energy-efficiency improvements. Toyota & Honda stand to benefit handsomely from their hybrids as do GM & Ford (if they don't have to break their unions in bankruptcy court). Building materials will benefit as everyone looks for ways to reduce their heating bills.
Disclosure: Berkshire Hathaway, Tweedy Browne, and IJS make up the vast majority of our retirement portfolio. We also own a significant minority of DVY and TATYY. I have a small position in NT. I've owned WMT, COST, HD, & LOW before and I will probably do so again. I need to think about buying Intel. I've shorted ANF before and I can't wait to get back onboard the ride. I'm ready to short HLF & WBMD. I wouldn't touch Toyota, GM, or Ford with a 10-foot pole in either the long or the short directions but I need to take a look at ESLR as soon as we finish expanding our solar array. Finally, I've been sitting on a few of Brewer's recommendations and I'm already beginning to regret not getting off the dime.
