We're all trying to figure out, why are stocks up today. Sarah Gilbert and Sheldon Liber have been IM-ing in search of answers. He says it's all because of Barron's cover story. She might agree. You'll see Sarah's comments in blue.
Powerful Media Influence + Facts = Real Market Boost. This weekend's Barron's cover story is "Time to Buy" and this morning the markets moved up in excitement. On page 21 the spread outlines numerous factors which may produce big gains in the stock market. In particular, Andrew Bary makes the case for S&P growth. The market has been held back for a number of reasons, creating uncertainty. Uncertainty is bad.
Specifically; interest rates have been rising, energy costs have been rising, war has broken out in the Middle East, Iraq remains a powder keg and North Korea is run by a power-mongering, risk-taking nut case. Add to that concerns about global warming, a weakening housing market, heat waves and hurricanes and the plain old summer market doldrums -- so what would you expect? Even I -- a woman who usually pooh-poohs the effects of international politics on investments like eBay and Starbucks, some of my favorite stocks -- have been made nervous by the Mideast crisis. When Melly Alazraki sent an email this weekend telling us she was fleeing her family's home in Israel, I was shocked to the core and about as far from a buying mood as you can be.
However, Barron's makes a case for light at the end of the tunnel. Large companies have been building shareholder equity for four to five years, but company valuations have stayed put, so P/E ratios are looking low by historic comparisons and have actually shrunk. Earnings growth, has outstripped gains in the stock prices. According to Bary, growth has outpaced stock prices for 12 quarters.
Companies have been reducing debt, buying back shares, increasing dividends, and still sit on mountains of cash. General Electric (GE) reporting 15% earnings growth last week, and Wal-Mart (WMT), two of the companies we follow on Blogging Stocks, are singled out as having improved in every way over the last five years except for one...their stock prices have remained in the same place. GE is at a 52-week low.
I'd argue that Microsoft (MSFT) and the afore-mentioned eBay (EBAY) are both in this boat, too: stocks at or near their three-year lows, yet with a supportable value proposition. Sure, not everything is perfect. I'd like Microsoft to spend less on the Xbox and on creating "an entire Google or Yahoo! within Microsoft," I'd like eBay not to have paid so much for Skype. Nonetheless: if I had to give anyone buying advice, I'd tell them to snap both of these stocks up.
There is a real possibility the Federal Reserve Board will take a break for a while on interest rates, oil prices will come down from their high points based on scared markets not scarcity, temperatures will cool down and hopefully some international tempers will as well. We could be heading into a value hunters paradise. So maybe it's a media blitz, but they do have some facts to back it up! And who are we to complain about media turning the dial in the "right" direction?
Closing Bell: When We All Love the PIIGS (NBG, SQNM, PG, ERTS, KO)
Serious Money: Cheapest Stocks List Shrinks from 26 to 21
Chasing Value: Hasbro Earnings Makes My Point
Reader Comments (Page 1 of 1)
7-24-2006 @ 9:00PM
Mr. noitall said...
Maybe investors just got around to reading the interview with Dean LeBaron on page 34 of Barons after 4pm today. That could explain why Netflix which was up over 3% today tanked 20% after the bell. He mentions a comment made by everyone's hero Warren Buffett during a recent Charlie Rose interview, Now I didn't see the interview, but according to LeBaron , Buffet said he's got absolutely no candidates to buy and he thinks the dollar is going lower.
In the last 5 years or so we've seen interest rates go from over 5% down to about 1% and back up over 5%. And the stock market crowd acts as if another rate increase will be a disaster!!! These are not signs of a healthy economy. The fact is that Bernanke has to make the choice between saving the dollar, or saving the stock and real estate markets.
I think he will try to play it down the middle and fail at both.
7-25-2006 @ 12:45PM
Babak said...
Since the beg. of organized markets, when the market moves people scramble after the fact to come up with a plausible reason or logic for it. Quite entertaining, but completely meaningless.