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Grasping at straws
  • Stocks Headed South....most Of Them Anyway. 0 comments
    Oct 9, 2012 3:38 PM | about stocks: AAPL, MSFT, OUTR, ATVI

    I have been a firm believer that the Macro situation in the world has been unhealthy for quite some time now. Summary: Developed nations borrow and print money so their increasingly lazy citizens can continue to consume products made overseas (in the case of Europe and to some extent even the US to also support the growing size of government). Developing nation economies grow at rapid paces, obscuring the underlying flaws in their system, due to the low hanging fruit they have grabbed. Flawed takeaway: state controlled capitalism works and the erosion of traditional jobs in the US has been happily replaced with the almighty service sector. However state controlled capitalism doesn't work long term and the highly leveraged US consumer will no longer be able to rely upon the service sector because the leverage bubble has just gotten pricked...and it will continue. What will inevitably happen: Slow de-leveraging. This means the robust world growth that took place over about 20 years will be balanced out by an extended period of much slow growth.

    US companies have faired relatively well due to their competitive nature, ingenuity, and cost cutting measures. But the 3rd quarter earnings will be a wake up call. I think this a dangerous time for the buy and hold investor. The market will correct downward through the first half of 2013 at the least, and possibly experience a sharp correction if deeper problems surface in China, India, or the EU.

    The way forward for the non-options trader (of which I count myself one) is to seek undervalued/fairly valued companies who sell products and or services with relatively inelastic demand in relation to macro factors. So in other words a weak macro environment will reduce the demand for their goods or services less than other companies goods or services.

    Some companies I like are Apple(NASDAQ:AAPL), Microsoft(NASDAQ:MSFT), Coinstar(CSTR), and Activision Blizzard(NASDAQ:ATVI). Apple is Apple. i won't beat the drum, but they have a number of potentially positive catalysts which will keep earnings growing through 2013. Fair price, a history of doing well when the economy doesn't, and dividend. People take their gadgets serious, and when it comes time to trim the budget, the gadgets aren't first on the list.

    Microsoft is reliable to a fault, but I think they are poised to establish themselves a 3rd player in the mobile OS war as well as their venture into the hardware side of things. I see a turnaround in terms of stock price for this company. Their hardware venture should more than make up for any softness in the software upgrade numbers. Also the new Xbox should further solidify their lead in wiggling their way into our living rooms.

    Activision Blizzard: who said consoles were dead....Zynga? I predict console gaming will be thrust back in the spotlight with the new PS3 and XBOX. This great company should get some love then.

    Coinstar offers something we all want in a simple, convenient, and impulsive package. With their diversification into other types of vending (coffee and concert tickets) I see them dominating a forgotten market...vending machines. They have a deal with Verizon to get into streaming, and who knows where they go from there. I think the death of physical media is certain, just premature. PE under 10.

    As you can see I like fun stuff, and I think that consumers will continue to have fun even as their purchasing power is eroded by inflation and they try to scale back spending a bit.

    Last idea: If all stocks are too scary...try a 3x bull dollar etf. The greenback will be the least bad option over the next 12 months.

    Disclosure: I am long AAPL.

    Stocks: AAPL, MSFT, OUTR, ATVI
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