Monday, August 8, 2011


We’ll it’s finally time for another blog post.  I don't know about you but I've been having a great summer and we've enjoyed more days at the lake this year than I can remember.  Things definitely got a little spicy this weekend with the S&P downgrade of US debt.  All it did was add a little more fear to the fire. 

Well if are looking for attractive securities I would suggest randomly hitting letters keys on your keyboard.  The market is finally repriced and now offers decent value.  Lets try a few random letters. 

WMT – Yep, it’s a winner.  Walmart is cheaper today than during the darkest days of the recession. 

BRK – Close enough… BRK.A/BRK.B are at a new 52 week low and the company is so cheap they have to be considering a share buyback, although Buffett doesn’t like taking out his so called “partners” for cheap.  That said they have $40 billion in cash and I would bet Buffett is putting some to work as I write this. 

WFC – New 52 week low today, awesome deal.   Wells Fargo is the safest and best run bank in the USA.  They will be earning over $4 per share within 2 years.  At $23/share that’s a 17% earnings yield (P/E of 5.75).  If you can handle the stench, BAC offers even better value.   

MSFT – Wow another winner.  Microsoft is minting cash at a rate of $2 billion every month and has a comfortable $51 billion of liquid assets but who’s counting.  The company has averaged 14 billion of free cash flow for the past several years.  Microsoft even has a higher credit rating than the US government according to S&P.

GS – Short and sweet.  Goldman Sachs is selling for less than tangible book value and these guys know how to make money better than any other on Wall Street.   

JNJ – Well Johnson and Johnson produces 14 billion in free cash on 60 billion in revenue… can you say fantastic business!  Today’s valuation is compelling with the company offering a 3.7% dividend.  Sit back and get paid to be an owner. 

Beyond those, I like almost anything in the DOW.  Almost all of the companies have a license to print money and offer outstanding value.

As for the next few days I would look for a rebound.  I noted on a couple of other blogs that the VIX is reaching new highs (a measure of volatility).  Secondly, the VIX relative to the ten year treasury is as high as it’s been since the failure of Lehman Brothers.  That means if the tomorrow is a great time to buy if you have any cash available.   Looking backward, stocks have rebound strongly (90% of the time) over the following three month these levels were reached before.   

I am lucky I have the bulk of my funds in three stocks that have held up well (PEY, BRK.B, FFH).  My BAC and WFC are taking it on the chin today, but I know in the long run they will be fine. 

Much of the issues in the financial sector in 2008 was related to mark to market losses on mortgage backed securities.  Once these securities became illiquid their value was anyone’s guess.  Today banks have lots of liquidity, the Federal Reserve holds the bulk of the risky assets, and the banks rely very little on the short-term repo market (or at least they should have learn this lesson). 

I used to tell a coworker back during the darkest days of 2008 that in a couple of years we would both look back at this downturn as a blip on radar.  The same is still true today.  I just talked to a doctor friend of mine and he said a number of patients came in today and said they sold everything.  I told him to start buying every time he has a day like today with his patients selling out. 

Be greedy when others are fearful and fearful when others are gready.”  Warren Buffett

It’s gready time.    

Good Luck,

Disclosure: I am long everything except WMT, which I may purchase over the next couple days. 

No comments:

Post a Comment