Guest blogger and avid investor Bob Sirmans offers this perspective on recent market events:
Conventional wisdom used to support the notion that market downturns were buying opportunities and investors should use them to add to or open new positions. It seems to me that the tech wreck of the early 2000s has changed how people invest and their views on markets. Now it's not quite so clear that a downturn is necessarily a good time to buy.
However, in spite of the fears that people have, I can't imagine not using dips/corrections as a good time to buy. I used the market spiral yesterday to open a new position in a stock I've been looking to buy to give me more exposure to American companies that generate a least 1/2 of their revenue (on a percentage basis) from outside the US. Yesterday I bought some Caterpillar Inc. (NYSE: CAT) on the market slide.
The way I see it, the US and China economies are both showing signs of slowing. While I think this will rattle the markets, putting money in the bank isn't what I want to do.
Am I more likely to take profits now? Absolutely. But I still need to keep my money working.
Does anyone else still view market downturns as a buying opportunity?
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Reader Comments (Page 1 of 1)
3-01-2007 @ 2:10AM
Andrew Horowitz said...
Caterpillar was the first position that I bought this morning for clients. It was a bit like looking at a good stock that was caught up in a very bad market. The fact is the CAT has been doing very nicely, albeit quietly.
While the housing and building sector has been under fire, CAT has weathered the storm well as it has a well diversified base of customers. The management has continued to watch for the earning signs of an economic cool down and that is shown in the stock price performance over the past several months. No, it has not been an exciting chart to watch, more like watching paint dry, but it is just looking for a reason to break out.
Since May 2006, when it reached a high of $80, it has been showing classical consolidation patters, while paying a good dividend and showing consistent earnings growth.
In Feb 2007, CAT announced that they will repurchase up to $7.5 billion of their stock. You got to love when a company thinks that their stock is the best opportunity for their excess capital. Whether they actually end up buying the entire amount or not is a different story altogether though.
Earnings Ratios
The current PE is approaching 12.5 and forward PE is just about 11.4 as of Feb 28th. This is one of the lowest in its industry group and at the low end of its 10-year average. The PEG ratio is only .82 which shows a company that is possibly prime for a long position entry, given the current technicals.
The balance sheet looks clean and debt is well controlled. The only possible problem could be the eventual economic condition of the US and world 12 months from now. According to Ben Bernanke, there is something to worry about and the same is true for Alan Greenspan. Yet, the CEO of CAT thinks otherwise. He stated in a recent interview that a soft landing for the US economy is looking very possible.
CAT seems to be a winner and appropriate for a buy and hold portfolio that wants low volatility with some decent upside potential.
Andrew Horowitz, CFP
http://www.thedisciplinedinvestor.com
http://www.thedisciplinedinvestor.com/blog
*Clients of Horowitz & Company own a position in CAT as of the time of this post
3-01-2007 @ 7:25AM
Chris said...
OSK
I sold Oshksosh after their last earnings report (after what happened to AAPL a few weeks prior, I paniced with I saw OSK start sliding; they are up considerably sense).
The reasons I like are Oshkosh are that it gets relatively little coverage, it is very well run, they have diversified pretty well away from defense, they are getting feelers out in China, and they have delivered continuous growth over the past I-forget-how-many-quarters.
OSK has pretty good valuation, and that company keeps truck'n on, if you'll pardon the pun. I'd like to get back into it around $52-$53.
Chris