Saturday, February 5, 2011

Current Market Commentary

I haven't written much over the past little while mainly because there isn't anything meaningful to talk about.  The market is fairly valued, although some sectors should outperform the overall market doesn't interest me at this time.  Small and midcap stocks are definitely fairly valued, while a number of very large, high quality,  represent decent value.  Now for some doing nothing and allowing the dividends to accumulate is a very tough thing to do.  Sometimes you can add a lot of value by doing nothing. 

I should note that you could always do some valuable reading of annual reports.  How many annual reports do you read per year?  If you are desperate for some value plays I would recommend reading up on the following stocks; Axis Capital, PNC Financial Services, and Calloway Golf.  My Canadian recommendation would be Home Capital Group.  I have been reading the Home Capital annual reports for at least 5 years and finally the stock is trading at P/B and P/E levels that represent decent value.  Being patient does pay off.  The only problem is I feel the other stocks I own are cheaper.  All of those stocks are selling at or below book value and can earn decent returns on equity over the long term.  If you are looking for short-term gratification, you're reading the wrong blog.

It also appears that OPTI Canada, an oilsands company, is going broke as they are drowning in debt.  This may present an interesting distressed debt scenario over the next few weeks if you are into those types of plays.  I love Buffett's (or maybe Charlie Munger's) quote on debt, "If your smart you don't need it, and if your dumb you have no place using it."  Now, put yourself into either the smart or dumb category and re-read the previous quote. 

Since were on the topic of being smart and dumb, I have been constantly telling my son that the difference between a smart and a dumb person is a smart person doesn't pretend to know something when they don't.  Dumb people have opinions on all sorts of things when, if the truth be know, they lack the knowledge and background to make such comments.  Being able to recognizing what you know and what you don't know will take you a long way in both life and investing.  Some people will be able to relate with what I am talking about.  Let's get back on topic.

Recommendations Look-back

It's about 4 months since I started this blog and it's interesting that the first stock I wrote about, Hardwoods Distribution Income Fund, was the best performer.  It is a very small cap that has appreciated approximately 50% over that time.  Most of the financial companies recommended are up 20-30% including GE, MFC, WFC, BAC warrants, etc.  The worst performers, and perhaps still the best opportunities are JNJ, FFH, and KFT.  They have been flat to down. 

Looking Forward

It appears that the green shoots from last year are continuing to flourish and grow thanks to the easy money policy of the Federal Reserve.  For those who follow the economic data, the overall economy is doing quite well.  Headline US GDP was up something like 3.2%, but excluding inventories it was up around 7%.  Exports and consumer spending led the way, which are two huge positives and their importance can't be emphasized enough.  Auto sales are on the rebound, and housing will follow shortly.  Both the ISM Manufacturing & Non-Manufacturing (services) indexes reported very strong levels this past week. 

The US jobs report that came out on Friday was definitely interesting to say the least.  The total jobs number was poor, however the unemployment rate fell sharply to 9.0%.  This was mainly due to civilian employment and weather related adjustments.  More than that, the low headline number seemed to be at odds with the ADP employment report and the Canadian employment report, both of which were very strong. 

For those who do follow the numbers closer than what the media reports... the last several reports have included upward revisions.  The media reported the headline number of 36,000 jobs in January, but didn't mention revisions to November & December that added another 40,000 for total net additions of 76,000 jobs.  Also of note, normal weather related adjustments for jobs are typically around 400,000 for January, however the report had weather related adjustments of over 800,000.  To make a long story short the next few months should have some explosive jobs growth.

Conclusion

This will be my last post for a while as I will be on vacation for the next couple of weeks.  I am leaving my laptop and blackberry at home (not my choice).  I am taking three books to read, one on investing, one on social phenomenon, and one on political science. 

See you in a couple weeks,
Kevin

Disclosure: Long GE, BAC warrants, WFC, MFC, HWD.un, KFT, JNJ, FFH (Personally or in accounts I manage)

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