With Great Values Now In the Markets, the Glass Is Half Full

I have warned that the consumer sector will continue to suffer from the “no tickee” syndrome. That’s what happens when job layoffs and credit withdrawals and underwater mortgages become primary issues in the lives of tens of millions of people who recently were being told they are richer than they think.

Until the people start to look ahead to the day when they will come home with tickee, traders have to avoid the consumer sectors.

No tickee means no new car, washing machine, wardrobe, computer or vacation in the Bahamas. It means too many people need social services like food banks to help them make it through this week wondering how they’ll make it next week.

Banks will not be much help to the people at this point because they are working overtime to collect payments on loans so they don’t have to collect the assets that were put up as security for their loans. Until this crisis passes, it’s also not a good time to be investing in the banks. Not yet at least, but trillions of dollars, euros, pounds, yen, and yuan being transferred from government to banks makes sense to look to going forward.

The headlines today ring out “Global Recession Fears”. But, yes, I am bullish, overall. Unabashedly so.

Prices have fallen to a point where long-term values are all over the board. I looked at a debt-free company last night that has much more than twice the cash per share in its treasury than the last price of its stock on the market. What’s wrong with that picture other than we’re at the transition from Bear to Bull, and the Bear has taken that stock down -90% from its 52-week high.

I see lots of that kind of thing. I always do at the end of Bear markets. It’s also a time I hear that business will never recover; that the economy will fall deeper into a massive recession, yada, yada.

Yes, times are tough, and will be tough for a while yet, but there are good values on the market, and smart traders are snapping them up. Do you recall a couple years ago that I opined here that the market would be close to the cycle bottom when Warren Buffett started to invest the mega-billions of cash at Berkshire-Hathaway (BRK.A)? That value seeker has recently invested mega billions.

Most, but not all, the values in the market today are in the energy, basic materials, industrials and technology sectors. But, we need to avoid the companies in these sectors that have high debt and those that rely on high consumer turnover to meet their debt service.

If you happen to like financial services, and would look at a Canadian company that one of my colleagues likes a lot, have a look at Home Capital Group Inc. (HCG.TO C$26.45) on the Toronto Exchange. This is a financial services company that is prudently managed through thick and thin.

There are many fundamentally sound companies like this in Canada and the US. You just need to do your “home” work to find them.

Tough times ahead, yes! But there is relief on the way from governments around the world, the likes of which the world has never seen in its history. There is also going to be regulation that will turn the present system on its head. Finally, the reflation policies of governments today will mitigate the damage done by Humungous Bank & Broker and will lead to economic recovery tomorrow.

I no longer see the glass as half empty. I did that when going through the market topping process one and two years ago. Now that prices have plummeted, and great values abound, I see the glass half full.

You too need to consider the possibility.

Comments

[venividivici:]

Bill my advice to you is stop talking about it and get in there and start drinking your home brew. Gee I hope it is not poisonous mate because I can not see the slightest reason to be positive mate and I have this sneaky suspiscion that neither do you.

2008 Oct 16 10:46 AM

[pochovilla:]

The glass may be half full but it keeps getting smaller.

2008 Oct 16 11:42 AM

[mcadoo3312:]

That's the point.

2008 Oct 16 01:50 PM

[livesinhiscar:]

I'm really tired of everyone saying that Buffet's deals are some sort of bullish signal for the rest of us.
None of us get 10% preferreds and free warrants below the market.
It's only a signal if he is out there buying the common like the rest of us.

2008 Oct 16 07:19 PM

[123:]

to user197175-agree with you there.

Heard WB say that he hasn't bought common in an American company for his own personal account since he purchased WFC in the low $20's earlier this year.

It is still-I mean you are starting to see ratios come down, for example I own EBAY which makes about $2.4B cash a year trading at a $15B EV (6.25X though I know you all can do the math), even though the sentiment is just awful around that company.

But still it is tough at least for me, to see stable companies selling at 5X with decellarating earnings though you are starting to see decaying companies in that range, ie GCI, DLX, nearly impossible to see 3X with flat or accelerating earnings. So it's not like this stuff is dirt cheap as some people are implying, especially considering noone really knows how far fundamentals will deteriorate in this recession or depression whatever you want to call it.

2008 Oct 16 08:37 PM

[123:]

to correct the WFC-that didn't make sense-hasn't bought common in an American co in the last "decade or two" for personal account except for the WFC.

2008 Oct 16 08:38 PM

[Jake2:]

Hot air. Reader, pass by.

2008 Oct 17 03:00 PM