Ted Allrich is the founder of The Online Investor and author of the just released book: Comfort Zone Investing: Build Wealth And Sleep Well At Night. In this weekly column, he'll offer advice to investors who are just getting started.
With certain sectors of the market collapsed, many smart investors are starting to do more than homework. They're buying stocks in small amounts, building positions for a time when the economy is once again in a growth mode. Make no mistake: the economy will recover. It has ever since 1776. What is unknown is when. If you want to see what some of the "smart" money is buying, check out these stocks.
The one common element they all share: compelling valuations, either in an absolute sense, meaning their prices are the lowest in years or a relative one, meaning they're selling for valuations that are the cheapest they've been in some time. Some have P/E ratios not seen in a decade. Others are selling well below book value.
You'll also find some have specific problems such as lawsuits or subprime holdings or some other reason for why their prices are so low (relatively or absolutely). You need to sift through those and determine how comfortable you are with that risk. Some of these have no specific reason at all for lower prices. They're just down because investors are selling everything, no matter what the prospects for the company.
These are all very large stocks with plenty of capital. While no company is safe from a major disaster, these stocks should be able to withstand any exogenous blow and recover, then once again lead. Some have already rebounded well off their lows, as much as 50%. But they've fallen so far that they still have a great deal of room to reach "fair value".
The overriding sentiment for investors is that a recession is either going on right now, or there is about to be one. That is already priced into these stocks. If the news gets worse, these will go down more. But most likely not too much more. They've already been hit hard. A portfolio filled with these names should perform admirably over the next few years.
Don't rush out and buy these names just because they're on a list. You need to know each story, be comfortable with a company's prospects, then buy a small amount of several of them. Simply buying one will not be the best approach. Diversification is the key to success.
There are many stocks representing good value. This list is by no means complete. But these stocks will give you specific companies to consider and spark your thinking into related areas.
Pharmaceuticals: Web sites:
Johnson and Johnson www.jnj.com
Merck & Co. Inc. (NYSE: MRK) www.merck.com
Pfizer Inc. (NYSE: PFE) www.pfizer.com
Home Builders:
Toll Brothers Inc. (NYSE: TOL) www.tollbrothers.com
KB Home (NYSE: KBH) www.kbhomes.com
Consumables:
PepsiCo., Inc. (NYSE: PEP) www.pepsi.com
The Coca-Cola Co. (NYSE:KO) www.cocacola.com
Financials:
AIG: American International Group Inc. (NYSE: AIG) www.aig.com
American Express Co. (NYSE: AXP) www.americanexpress.com
Citigroup (NYSE: C) www.citigroup.com
Bank of America Corp. (NYSE: BAC) www.bankofamerica.com
Wachovia Bank (NYSE: WB) www.wachovia.com
Washington Mutual Inc. (NYSE: WM) www.wamu.com
Wells Fargo & Co. (NYSE: WFC) www.wellsfargo.com
Fannie Mae (NYSE: FNM) www.fanniemae.com
Freddie Mac (NYSE: FRE) www.freddiemac.com
Closing Bell: Economic Catapult for Thanksgiving & Black Friday (WMT, TGT, GRMN, GOOG, MSFT)
Deere up on Q4 earnings performance
Reid Hoffman: LinkedIn will go public (at some point)
Reader Comments (Page 1 of 1)
2-16-2008 @ 1:49PM
BizIntel said...
I agree with your recommendation of Wells Fargo (WFC). Based on research I did after reading an article in Barron's, I think they are well positioned to weather the subprime fiasco. While things can certainly get worse as we head into a possible US recession, they are probably one of the banks that will be least affected.
Cheers,
BizIntel
http://www.evaluatingstocks.com