what I like
cat tail
9/7/2011 11:11:57 AM
I'm intrigued by Hess after your Bakken post, Scott. And you have me thinking about Silver, too.
When I say "cheap" I always mean cheap relavent to earnings (P/E) or other value metrics such as ROE and PEG. Keep in mind that the dollar stock price has no meaning unless you look at the price relative to earnings or ROE.
It's like trying to decide whether the price of a house is right without knowing the square footage or acreage of the property.
Of course the problem with "cheap" is that "cheap" stuff can always get cheaper.
Re: Interesting List
Tenacious
9/6/2011 2:23:30 PM
Yep, I agree. Cheap is relative. I assumed Scott meant "cheap" relative to the value of the company. My favorite on the list is Hess.
Tenacious,
I guess 'cheap' is a relative term. Most of the stocks I see in this post are either blue chip of penny stocks.
Re: Interesting List
Tenacious
9/4/2011 8:53:36 PM
Do you mean ones besides those cited in this post, Phil?
"...but there are individual companies doing very well that are cheap"
Scott,
Do you feel like sharing any good picks??
Good points, Value Hiker. But ORCL still generates a huge amount of cash flow!
All of them are classic value plays from a cash flow - P/E perspective.
That also doesn't mean the multiples can't compress further.
From P/E point of view, MSFT forward P/E is 8.35, IBM is at 11. Oracle' 10 doesn't look that attractive. The PEG, Oracle is a little better at 0.7 while MSFT is at 0.9, IBM is at 1.0. However, most of Oracle's high growth rate came from acquisition, not organic growth. I am a little doubt that Oracle's growth can last.
Stocks are cheap because we are still mired in a global credit crisis, which reduces the premium to own stocks. Historically, indices as a whole are not necessarily cheap, but there are individual companies doing very well that are cheap.
I believe another factor is demographics and the fact that we are 12 years into a secular bull market. There are two reasons that stocks go up: 1) They represent value and 2) there is money to invest. We are largely struggling with #2. Baby boomers are retiring and looking to sell stocks, other folks are struggling with making enough money and/or being employed. Mutual fund cash levels are at all time lows.
So you have to ask yourself: Where's the money going to come from? Ben Bernanke is betting on the bond market. He is hoping that if the Fed can keep yields low, eventually it will drive some bond money into stocks. After all, if treasuries are yielding 2% and your favorite blue-chip is yielding 3.5%, at some point it becomes a no-brainer.
So where would the money come from in this case? Reallocations from large funds such as pension funds that will take money out of bonds and put it into stocks. I believe that will start happening in the next 12 months, but we are not there yet.
The reason I am not "super-bullish" is because I see the near-term threats of the Euro-debt crisis and a possible reduction in corporate earnings over the next 12 months as a threat to the market. But I do believe that things are getting so bad, and earnings multiples are being compressed so low (i.e. single-digit P/Es), that we will have another great opportunity to buy stocks in the next few months -- kind of like late 2008/2009.
Can you time that exactly? Of course not. That's why you buy cheap stocks at fair valuations and dollar-cost average over time.
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