An Opportunity for Patient Investors - Barron's

 |  Includes: BRK.A, GOOG, L, MSFT, VVR, XOM
by: SA Eli Hoffmann

"We're in for a multi-year period of pain," Ray Dalio of Bridgewater Associates tells Barron's. All major markets are down at least 40% this year as investors seem to have resigned themselves to some form of global recession. The debate has already shifted from the R word to the D word - will the global economy slip into depression?

Still, not all is bad. The good news, Barron's says, is that governments recognize the threat and are responding with unprecedented force, commodity prices are way down, and Buffett (NYSE:BRK.A) is bullish. U.S. stocks, at 10x earnings and a 3% dividend yield, look reasonable. European stocks at 1.2x book value and a 6% dividend yield look even cheaper.

The possibility of a short-term bounce looms: The S&P trades 25% below its 50-day moving average, which has happened just five times since 1928, all resulting in a rally.

While not recommending throwing all you've got at the market, Barron's thinks some ideas are worth a closer look. A sampling:

  • Cash-rich firms like Microsoft (NASDAQ:MSFT), ExxonMobil (NYSE:XOM) Loews (NYSE:L) and Motorola (MOT).
  • Munis rallied last week. Barron's recently highlighted their appeal.
  • Junk bonds yield a stunning average of 19%, vs. 8% a year ago.
  • Leveraged debt is selling for $0.60-0.80 on the dollar, allowing investors to buy in at a fraction of the price paid by private-equity firms. Van Kampen Senior Income Trust (NYSE:VVR) focuses on leveraged loans.
  • Takeover arbitrage situations also offer rich returns due to overblown fears the deals won't close. Point in case: Anheuser-Busch (NYSE:BUD) trades for $57, well below InBev's $70 offer.