Tom O’Brien says there are some unloved companies that could be setting up for gains, in Part Two of his interview with MoneyShow.com. He also says revenue at big industrials could slow because of the weak dollar. That, in turn, could hurt some blue chips. (Read Wednesday’s Part One, where O’Brien gives recommendations in precious metals, here.)
Kate Stalter: Let’s shift gears a bit, Tom. Let’s talk about the general equities market. Last week, on Friday, September 2, there was a dismal jobs report that sent stocks tanking lower immediately. Overall, of course, there has just been a tremendous amount of volatility recently. Give us some of your ideas for actions that investors could be taking, at this time.
Tom O’Brien: They should be protected, number one. Meaning, don’t let these things get out of control.
If you are in the market, make sure you use stops. That first leg down was vicious. That first leg down, from July 22 to August 9, was heavier than the first leg down in 2008. It was fast, it was furious. Last Friday, that jobs number was a bad number.
Now the market, when it comes down this fast, I suspect that these lows will hold for awhile. The reason being is that even though you have fast price destruction, I am always talking about volume. The volume behind the move that past Friday really wasn’t there.
The volume is drying up, and that is what you would like to see when it dries up. If it dries up, that means that it is going to try to be in consolidation also.
We just talked about the S&P. When you look at that, it is not a bad consolidation for the first run off the bottom. The bottom of the consolidation is 1,100 and the top of it right now is 1,230. If in fact it can start building a base out there, and that’s not bad.
Folks, you know, don’t let things get out of control. Make sure that you have stops in. Don’t marry it, don’t take it down to the cleaners.
Kate Stalter: Now as you and I have discussed in the past, even in terrible market conditions, there are often names that are holding up better than the general market, that may be setting up for a further price rally. Anything of that nature that is catching your eye at this moment?
Tom O’Brien: There is an equity that is setting up really nice. One of them is JDS Uniphase (JDSU). I don’t own it right now. We owned it last week, but I took some bread off the table.
There is something going on with that equity that is really good. Right now they make 37 cents a share, the high for the year has been $29. It’s trading at $13.36; that is an equity that your listeners want to be all over. Because in a bad market, that is still acting great.
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Let’s just give you an idea: In a bad market the stock went from $9.78 all the way up to $13. So there is something happening in there. It has higher highs, and good juice behind it.
They are in a good business; they are in basically in the communication test and equipment business—that is all over the place. I mean digital communication testing, equipment, everyone is using it and everyone needs it. They normally grow their earnings. Of course, we know that you grow your earnings and the price is going to fall right behind it.
Kate Stalter: I am looking at the chart right now, and I’m seeing these big moves that you are mentioning. Anything else along those lines, Tom, that you are seeing as either holding up at moving averages or showing good price growth amidst all the destruction elsewhere?
Tom O’Brien: Something that they can keep an eye on if they want to basically take a shot inside the banking structure would be JPMorgan Chase (JPM). You know, JPMorgan is an equity that I think is the strongest bank out there. All of these banks got killed, but with JPMorgan, you are talking about almost a 3% dividend; that is a good number.
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If you dip into JPMorgan, I would be looking at how it is pushing into the lows, meaning I wouldn’t be biting just yet. I would be biting somewhere around the $32.50 area and looking at it, and saying, “OK, can it hold those areas?” It looks to me like that will hold that area. That, no doubt, is a good setup.
When I say a good setup, let’s put it this way: That gives you some diversity inside your portfolio. It will give you the best bank that is out there. JPMorgan is not going away; they make money hand over fist. You are buying something with a P/E of 6.5. The banking structures are changing, because the rules are changing. JPMorgan at 6.5 times earnings is not bad.
Kate Stalter: Last question for you, Tom. What are some areas that investors should be sure they avoid, or if they are in right now, should consider selling? What is showing special weakness right now?
Tom O’Brien: The large industrials. The large industrials, the names that people absolutely love, are showing some big problems. If we look at 3M (MMM), 3M has gone from a price point of $100 down to $79. That looks in trouble. United Technologies (UTX), that is in trouble. Those equities there, the thing I’m going to be watching: These are big, big Blue Chips.
I suspect that what that is, Kate, is this: When the dollar wants to go higher, these Blue Chips will get hurt because they make a huge amount of money overseas. Huge—most of their earnings come from overseas. So on that correlation, you know they will make less money.
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