Ready to go

I don’t see why I shouldn’t point out companies that are ‘Fired Up, Ready To Go’ as Obama would put it. I’ve got three Chinese companies that are heating up NBA Jam style.

I see headlines including phrases like “End of an Era,” “The Biggest Bankruptcies in History,” “Why Your Home May Be a Bad Investment,” “Road to Bankruptcy,” etc. Let’s take a walk on the wild side and get Iced Out in China. That’s the new lingo for saying, let’s take a look at a few luxury goods companies in China that are set to appreciate in price more than the stock market in the next year as the global stock markets continue to rebound.

But first, I’d like to address the VIX, which has frequently been used to gauge market fear and uncertainty over the past year. I propose that it is not measuring fear at the moment, but rather is measuring the market rallying potential. Seeing as how it measures future expected volatility, it can either get expensive if this is positive or negative expected volatility. My belief now is that it is the positive market potential that is holding the VIX above 25. Feel free to call this the Panic-Buy-Hypothesis and to compare it to the Efficient-Market-Hypothesis. Initially, it was the reversion back to reality that turned the shorts to cover themselves as their tide went out and they were left naked. Before that, they were the cool kids in town and everyone was jealous of their skinny dipping ways. This has been going on too long and money is starting to come off the sidelines to “start speculating.”

Instead of talking about finance institutions that are being diluted like Citigroup (C) and financial institutions that are so hot they’re already above their November lows like Wells Fargo (WFC) and Goldman Sachs (GS), I’m going to introduce you to a better place where it’s bottoms up from here.

After getting the wind knocked out of it, Anthracite Capital (AHR) shows signs of life. Granted that the price has probably exploded higher from $0.74 by the time this article gets published, let us use it at a baseline. What do we know about Anthracite at $0.74?

I think that if you’re a professional money manager and you don’t make 100% return in 1 year starting today --- you should look into other forms of employment.

Jim Cramer is right. I’m going to stand up and shoot for 100% in 1 month with a couple stocks. All of them are set for huge gains when the mutual funds grab them at $5.

Allow me to start off by illustrating my sentiment from January 2008 – February 2009: I hate banks and I have no idea what they are doing. I hate anything financially related.

But, I find myself not hating banks anymore. What happened? I’ve got eight leading indicators that people might be aware of but aren’t catching headlines like they should be and I’ve got four monster catalysts. What do I know? I’m only the Motley Fool’s Hottest Player going into Easter Weekend. Further, my entire college tuition is riding on the stock market.

You might have been like my friends and family in the past 6-months -- afraid to check the portfolio, afraid to accidentally see the latest Dow Jones beatdown, with an upset stomach from a depreciating portfolio of Large Caps that your broker said were a great buy two years ago. You might be in a state of denial. You might be sitting 100% cash with two years of fallout supplies packed into your basement. I challenge you to open your eyes and go hunt with me for bargains.

What sets Super Markets apart from Stock Markets is pretty straight forward. At the Super Market, a 50%-off sale draws people from across the country to line up at 4am and stampede the bargains. At the Stock Market, a 50%-off sale is like a bomb threat in an airport. There are those that make gobs of money in times when the stock market is 50%-off. The trick is not looking around for the 50%-off items, because those really aren’t the bargains anymore. There are stocks that are 95%-off in a 50%-off sale. I call this the clearance aisle. These goods are selling for less than their cost of production (book value). The trick here is differentiating ones that are high quality from those of lesser quality. I set my parameters as fairly straight forward. The companies I buy have to be profitable and growing.

I've compiled a short list of reasons why Conseco (CNO) is a good investment. For starters, the cash balance in the last 2 months has doubled:

The financial crisis has sent the markets plummeting. For those who believe that companies that make more money than other companies should be priced higher than other companies, boy do I have some bargain bin deals for you. In the past 6 months, I’ve hand sorted through over 5000 companies. The steals are all in China.

1. China Architectural Engineering (CAEI) specializes in high-end curtain wall systems (including glass, stone and metal curtain walls), roofing systems, steel construction systems, eco-energy saving building conservation systems and related products, for public works and commercial real estate projects. It just got added to the Halter USX China Index.

Alright, I was an idiot. I was wrong. I admit it. I was looking at the wrong numbers. I was saying that it was a good idea to buy Central European Distribution Corp. (CEDC). I started talking CEDC in early October: here, here, and recently here. Great, so I established that we have a potentially great company, but the stock price was not confirming my gut. I should have been watching the Zloty, which is the Polish currency. See how the exchange rate peaked in July and the stock price did as well?

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Based on the last couple years, Dow Chemical's (DOW) Earnings Per Share easily cover its dividends. This isn’t your standard story where the operating earnings are falling below sustainability. This dividend has been stable. In fact, it brags in it’s increased or maintained dividends for 96 years. Note that Berkshire Hathaway (BRK.A) is on board this company in preferreds. Check the dividends against earnings below and the predictability of revenues and earnings over the past 10 years just below that.

Paul Price Tribute: My friend Paul Price is calling for a Bullish 2009.

Don’t Call it Early

I’m tired of analysts recommending stocks from their sectors for “Best Stock of 20xx” and then downgrading them weeks later because the stock depreciated in price. What makes me the most upset is when people recommend their “best stock” and don’t own it. Disclosure of ownership through a index or mutual fund isn’t owning it by the way. If I can find an analyst that holds a 10% of their portfolio in their #1 recommendation --- then I’ll listen. Until then, it’s glamorous hocus pocus.

I called the Hang Seng bottom earlier. Back then I’d have assigned a 90% probability to that bottom. I’d assign a 75% probability to the Breaking Bull 2009 in Russia and Oil. What I’m looking for is a 20% reversal off the bottom to indicate that we are in Bull market territory. Look below. Have we turned and is there upside? I believe so.

It seems like China won't stop at anything to keep its economy running full steam ahead: China announced a massive $586 billion stimulus package. There they go again, China's cutting interest rates again to 5.58% (the 4th time in the last 10 weeks).

This brings me to the question: How do you tell if a market has actually bottomed?

Wall Street is known for taking the brightest of minds and curb stomping their faces on the patio out back. In the past 3 months I've learned a lot about the dynamics of the stock market amidst one of the largest crashes we've ever seen. Especially, how accelerations in price evaluations can be expected in certain classes of stock (value vs. growth, small vs. mid. vs. large cap, dividend vs. non-dividend, developed vs. emerging, active vs. passive, credit vs. equity, time-based vs. time unlimited, high volume vs. low volume). I use comparative analytics and Monte Carlo simulation to determine the stocks I hold in my portfolio and the portfolios of my investors.

We've been in a bear market for a year now. I've been selectively bullish since Dow 11,000 --- and that turned to market bullish at Dow 8,000. That said, it could still go lower. I'm out there buying the falling knives and getting slaughtered doing it. What I didn't take into account was that when the entire market falls, it takes great companies with it. And, it takes those great companies to price levels that offer huge rewards for those patient enough to buy in at the right time.

I thought it would be difficult to find overpriced companies. I was wrong. Even in an environment like this, I was able to find people paying more than they should for stability. It's like buying ice cream in the middle of winter and expecting the demand to increase in the short term. It just isn't going to happen. I covered why it didn't make sense to pay face value for companies like Johnson and Johnson (JNJ) in times like this about a month ago --- but here's a company that's just downright overpriced. Don't believe me? Check back in a month.

The Stock to Drop:

You know the guy that follows up a lecture’s question and answer session by politely and verbosely introducing himself and thanking the speaker before asking the dumbest and most self-evident question that you could ever think of? He made it to the Talk on Ethics that I attended at Purdue University. I always wanted to see a speaker turn down a question because it was so stupid that it didn’t deserve to be acknowledged.

Unfortunately for me, James W. Owens, the CEO of Caterpillar (CAT),  was the featured speaker and he went right on ahead and destroyed the question with the greatest finesse. I was just glad that for a 1-hour seminar that was designed to talk about business ethics --- the ethics were prefaced with 30 minutes of industry and company numbers and drivers before President Owens began talking ethics.

Buffett's buying American stocks. Cramer's buying dividend stocks. Martin Zweig specifically loves this kind of stock.

National Presto (NPK): It's the first time I saw one of the most awesome college products in the world, a rotational stand alone frozen pizza cooker. Needless to say, the company has other awesome products.

If you’re like me - afraid to margin, afraid to bet the market is going down, and afraid that you’re not going to be able to pay for [insert large expense here] - boy, have I got an all or nothing strategy for you. I’m pretty much putting my neck on the train track lines in anticipation that there is hope and money to be made.

Getting into this mess was surely the easiest thing I’ve ever done. I just bought undervalued growth companies. But good news - these are the types of companies that are sold most when recession and depression fears spread like wildfire throughout the global marketplace, driving oil speculators home to their mommies and daddies.

Panic is irrational by definition. Remember Y2K? My mother was stockpiling water and canned goods; there were a bunch of people filling sheds preparing for the second cold-war. If you’re good, you can always take advantage of bad times. Still don’t believe me? I’ll point out Dick Fuld as the most recent example. Fear is raining down and I’m sowing seeds of opportunity. It’s earnings season. I’m trying to grow a “fortune.”

The companies are sorted in descending order from their categories by my personal allocations. All my comments are relative to historical market performance, future market expectations, and current pricing of industries and the S&P 500 in general. I try my best to find highly successful companies trading at prices that ignore their risk/reward potential (all prices as of yesterday morning).

Attention all you Google (GOOG) and Apple (AAPL) fans. It's time to buy.

Apple is priced to grow at 10.8% and is clearly capable and expected to do much more (Analysts expect 23%). Google is priced to grow at 13.1%, and is expected to do 26%. I don't usually name top shelf companies as buys.