How to Cash In on Last Week's Selloff - Barron's

Annotated article summary from this weekend's Barron's; receive all our Barron's summaries by signing up here:

COVER STORY: Still Betting on the Bull by Andrew Bary

Summary: Barron's ran a bullish cover story last summer; despite last week's selloff, they're sticking to their guns. In the 38 times since 1979 that the S&P 500 index took a single-session hit of 3% or more, the next 60 days has seen the index up 31 times, with an average gain of 6.9%. Private equity groups, sitting on record levels of cash and encouraged by seemingly endless low-cost financing, are likely excited by the opportunity the drop creates. Byron Wien of Pequot Capital still thinks the S&P could hit 1,600 by year-end, and says equities' 7% earnings yield compares favorably with the 4.5% yield on 10-year T-notes. Risks to the stock market include a slowing economy, global unrest, and weak earnings growth. But an economic slowdown could also be a boon if the Fed drops its rates down to 4%, a number some economists see by year-end. Barron's suggests investing in high-quality large-caps with diversified earnings streams:

• Citigroup Inc. (C) and Bank of America Corp. (BAC) -- they carry among the lowest P/Es in the banking sector, healthy yields (4%), and have lagged.
• American International Group Inc. (AIG) -- "arguably the world's best insurance franchise." It has underperformed in recent years, and Friday's earnings gave it a 4% boost.
• Pfizer Inc. (PFE) -- a few years ago it was the darling of the drug industry; now it trades for a cheap 11x P/E with a 4.6% yield.
• Proctor & Gamble Co. (PG) -- Morgan Stanley's Bill Pecoriello said last week it could rise from $63 to $78 in 2007.
• Coca-Cola Company (KO) -- it's as cheap as it was 10 years ago, and trades for 18x 2007e earnings.
• Berkshire Hathaway Inc. (BRK.A) -- the ultimate defensive stock. It trades for 1.5x book value and 18x earnings. Buffett will pounce on investment opportunities should the market tank.

Barron's: "That's the right strategy in a market rout. But we've got a hunch he won't get the chance to spend down his billions any time soon."
Related links: Eight Long Ideas From This Week's Downturn • Something's Wrong Here: Where's the Fear? • Stock Market Downside Scenario Increasingly Likely

Comments

[roy.mehta:]

hmmm....basically telling people to invest in S&P's largest holdings while most people are probably heavily invested in it or something similar already. Doesn't seem right to me. Smart guy like you has to be able to come up with something better than that.

2007 Mar 04 04:52 PM

[Irrawady2002:]

No kidding! Buy the biggest, least volatile safest, dividend-paying large cap to be safe! What a gem of wisdom! You should publish that in the Business Journal of DUH!

2007 Mar 05 02:37 AM

[Sufiy:]

Market SellOff and coming Slump: Gold, Silver and Commodities Meditation

sufiy.blogspot.com/200...

TA Nasdaq double Top Reversal is confirmed

sufiy.blogspot.com/200...

2007 Mar 04 05:48 PM

[Maureen Gibson:]

Sounds like what everyone including Cramer has been saying recently and what Warren Buffet has always said. Common wisdom? Tortoise and the Hare approach. I was hoping for new ideas for the new economy

2007 Mar 04 06:37 PM