2008 was perhaps one of the worst years for most investors in their lifetimes. One can safely look back and be thankful that the year is over. Of course, 2009 might not exactly be a rebound year, but at least one can assume that equity markets don't have much further to fall. I won't waste your time recapping 2008 at this point, well, I already kind of did that in my post titled "Top 5 Life Changing Events in 2008".
Before we move to 2009, let me just say that while it sucks to lose money, there is no shame in having 50% of your portfolio shaved off. If you find yourself thinking this game is not for you, I urge you to reconsider. Many of the pundits of the investment and economic world got it wrong last year. T. Boone Pickens thought the year would end with oil at $150, Jim Cramer recommended Wachovia right before it went belly up and Bernanke, Barney Frank and President George Bush were all wrong about the economy and the extent of the financial crisis. So if you lost money, know that most professionals who make a living doing this, lost money too, and lots of it.
Looking forward to 2009, the landscape looks full of stocks that fell from grace. Those that belong to the half-off discount club include Wall Street darlings and my favorites Potash (POT), Apple (AAPL), Google (GOOG), Priceline (PCLN), Visa (V), Mastercard (MA), Monsanto (MON), Mosaic (MOS), Flowserve (FLS), Research in Motion (RIMM), Abercrombie (ANF), Transocean (RIG), Gamestop (GME), China Mobile (CHL), CVRD .... the list goes on. But how can one identify the stocks that have hit the ground and are starting to shake off the fall? Which ones have further to go? Are financials ready for a comeback? Bank of America (BAC), Goldman Sachs (GS), Citi (C) - are these stocks ready to rise again?
Is it better to just buy ETFs? I mean if the markets remain flat, or rise 10% as most experts predict, isn't it better to just buy S&P Ultra funds like SSO? And isn't it worth it to bet on the dollar now that the whole world is reeling and looking to the US to lead them out of a recession? And what about USO, which is at all time lows?
Lets examine some of my picks for 2009.
Potash (POT): Potash is a fertilizer company. They produce and sell animal feed and nitrogen fertilizers for the agriculture industry. The price of commodities did run away from us, but now prices are down. However, just as the upside was blown out of proportion, so is the downside. Potash company has been making money hand over fist and has fallen from a perch of $240 just last summer to less than $53 in December, a loss of 78%. During the same time, earnings have continued to soar at triple digits. Demand is weaker, but not by much, according to Potash CEO William Doyle. Now back at over $70, Potash still trades at less than 6 times next year's earnings and is expected to make almost $13 per share in 2009. The company is expected to release earnings on Jan 22, so I recommend picking up some Potash ahead of the earnings, specially on a weak tape.
Oil (USO): I never thought oil would be in the 30's just a few short months after almost hitting $150. And just like no amount of good or bad news deterred this once hot commodity to creep up, it seems that no amount of news, good or bad is able to prevent it from further declines. Down 75% from its high of around $120, USO sits right under $30. Israel attacked Gaza, the Saudis cut production more than once, but nothing seems to have an impact on oil prices. The markets are afraid of the lack of consumer spending, the democratic agenda which has historically been unfavorable toward oil companies and I guess other factors beyond my comprehension. Regardless, if there is one thing you should buy today, that is oil. I can't say where it will bottom or if it will go higher this year, but the prices you will get this year will certainly be good entry points over the course of your investment. One thing I can tell you. Until oil goes up, the markets will remain depressed. For more on the potential direction of oil, check out this Reuter's post on Goldman's prediction.
Abercrombie and Fitch (ANF): Retailers have been the worst performers of 2008 and there is no end in sight for the carnage. But ANF is not your average retailer. They are the most popular teen apparel brand in the US, with Hollister, Ruehl and Abercrombie stores holding up relatively well compared to other retailers like the Limited and Gap. Some people like American Eagle (AE) and Urban Outfitters (URBN) in this space, but ANF trades at a PEG ratio of 0.65, and sits on a good amount of cash. In the teen retailing space, they are the trend setters. The stock traded in the seventies and eighties for most of 2007 and took a nose-dive in 2008. In November, the stock dipped below $15, but at a little over $20, it is still a good stock to own for the long haul.
The rest of my picks for 2009 will be posted soon.
Full Disclosure: I do not own USO, POT or ANF, but my position can change anytime without notice.