When Traders Panic, Investors Profit: Look to Blue Chips

by: Dana Blankenhorn

As I predicted last week, blue chips are on sale.

Right now you can get Microsoft (NASDAQ:MSFT) for a P/E multiple under $10. You can get Wal-Mart (NYSE:WMT) for under $12. Even Apple (NASDAQ:AAPL) costs less than $15. Google (NASDAQ:GOOG) is still near $20, so you might want to hold off there.

Given that historic multiples for markets have ranged from 10-15 for well over a century, except during the Great Depression and the recent Great Speculation, these prices are more than fair.

Of course, I know, all the crazy trading action of the last week, sparked by a deal to cut the debt (fiscal contraction), then a decision by S&P to cut the USA's credit rating (PR insanity), and growing turmoil in Europe (a return to normalcy), has you scared.

Don't be.

Traders like action. They live for action. The only kind of market a trader hates is one with no action. When the VIX drops into the single digits traders start making paper clips into silly shapes, shooting spitballs at one another through straws, and hitting on the secretaries. Even the ugly traders do it.

When there's no action on Wall Street, investment banks should hire luxury coaches and take the traders down to Atlantic City. It would benefit the markets greatly.

When there is action, any kind of action, money is made. Wild swings make for big profits, big losses, fast money. For traders.

For investors there's just heartburn.

My point is don't get heartburn. Things will settle down. Look to pick up some blue chips at rock-bottom prices, attractive multiples you won't see again in many years. You may have missed the boat in 2009. Don't miss it this time.

Find the best quality companies you can, firms with a ton of cash, with serious market franchises, with dominance in their industries. Grab them at their lows, then you go to Atlantic City and play quarter slots for a while.

When the traders come back calmly look at your portfolio and adjust accordingly, based on your long-term goals. My guess is you'll come out all right.

Disclosure: I am long GOOG.