What I'm Selling (and Buying) in the Market Turmoil

The market is in turmoil, and it seems like everyone I talk to wants my take on what's happening this week.  So here's my take:

• I really don't know if the various bailouts and decisions not to bail out made by Paulson et al will turn out to be good decisions or not.  I do know that the mess we're in is due to hard decisions which have been put off for years at the highest levels, and that the American taxpayer is going to be feeling the pain for a generation, if not generations.  
• Although I predicted that the credit crunch would lead to a bear market, (and was bearish long before that) the intensity of this last week still caught me by surprise. I had expected big problems to emerge sooner, and when they did not, I began to expect that the fall would be gradual, rather than quick. 
• I do not believe we are at the bottom, so I'm taking the current recovery as an opportunity to unload some of the stocks I expect to be hurt the worst.
• Long-term, the extra US-denominated debt will have to be either repaid, or inflated away.  Inflation seems most likely, which may be good news for technologies like wind and solar which produce energy at a fixed cost, and probably better for efficiency technologies which do more with less.

Stocks to Sell

What companies are likely to be worst hurt?  Any company which needs to raise new money in the next couple years.  Although I tend to favor established, profitable companies, I have recommended (and own) a smattering of startups with compelling technology, and I'm currently selling many of these.

Many of these companies are thinly traded, and I am still in the process of selling these positions (mostly at substantial losses).  Not wanting to depress their prices, I will not disclose the specific companies at this point.  I am also holding on to some which have fallen so far that the proceeds of the sale are insignificant, especially if they are in accounts such as IRAs where the tax loss would not be useful.

Ten Stocks to Buy

Last February, when it was still fairly early on in this bear market, I brought you a series on stocks to buy when you think we've hit bottom.  Although I do not yet think we've hit bottom, I know that timing the market is very tricky.  I also know we're considerably closer to bottom than we were in February.  Given these uncertainties, I take the approach of selling cash-covered puts on stocks I'm interested in at prices below where I expect them to fall.  This means that I collect the premium if the stock does not fall that far, or I buy the stock at what I considered a very good price if it does. 

I currently like companies involved in energy efficiency, wind, transmission, and government contractors involved in alternative energy, because I expect all of these to be more resilient during what I expect to be years of hard economic times.  Here are my current top ten, with links to the articles where I wrote about them. 

Since most of these companies are both large and extremely liquid, I don't expect that listing them here will affect the stock prices materially.  The ranking is based on a combination of how much I like the company itself, and the current valuation, starting with my current top pick. 

1. New Flyer Industries (NFYIF.PK), $11.00
2. Johnson Controls (JCI), $33.65
3. First Trust Global Wind Energy ETF (FAN), $22.55
4. Veolia (VE), $45.15
5. Philips (PHG), $30.83
6. Honeywell (HON), $45.32
7. General Cable (BGC), $38.99
8. Siemens (SI), $102.42
9. General Electric (GE), $26.62
10. AECOM Technology (ACM), $27.28

DISCLOSURE: Tom Konrad owns or has written puts on NFYIF, JCI, FAN, VE, PHG, HON, BGC, SI, GE, and ACM.

Comments

[PeteK:]

Gosssh, what a list !!
I have 9 more if you want to know !!

2008 Sep 23 04:27 AM

[mtp:]

seems overweight in industrial conglomerates.

2008 Sep 23 08:28 AM

[beabaggage:]

There is not going to be any money for the greenies, we are giving it all to the bankers and wall street. So oil and the cash flow it generates in safe countries like CN will be king. HON, GE have too much with aerospace too, the plane cycle will slow dramatically. These companies will also be hit by a wait-and-see order strategy by their customers who are not going to spend unless they see a return or can borrow to do so.

2008 Sep 23 09:02 AM

[tipalia:]

If you want your readers seeing red just mention GE. Wow they just love to hate this company and therefore find trillions of excuses to put it on the most unwanted list.

2008 Sep 23 10:09 AM

[NOWHEREMAN:]

Half of GE assets are Financial related, Should I assume they are worth 20 cents on the dollar and treat the $25 dollar current price as really worth $15?

GE Should spin off the Financial ARM but it can't. It can't because it would uncover its actual worth. They have been selling assets just like the now defunct Investment banks.

You want to invest in a "pig in a poke"? I do not.

2008 Sep 23 10:26 AM

[old guy:]

It looks to me like GE is headed toward energy not a bad direction....keep getting rid of the other products to expand that area! $$$$

2008 Sep 23 12:27 PM

[Pessimistic...:]

spending 8Bl in Asia on wind generation? That is looking forward and it has gotta help that pollution problem. I am sure it is still years away but funds generated from the deal should help GE's fundamentals.

2008 Sep 23 02:11 PM

[noam:]

Johnson Controls (JCI), $33.65 ????

Is this the time to be investing in the motor industry???

2008 Sep 23 11:51 PM

[noam:]

Johnson Controls (JCI), $33.65 ?????????????
Is this really the time to be invested in the motor industry??

2008 Sep 23 11:52 PM