With the market crashing as it has over the last couple of weeks, there are some real stock bargains out there for those who want to take advantage of this excellent bargain-shopping market.
On Friday I posted Part One of VFC's Bear Market Stock Picks.
It's possible that we may be at the bottom of the bear market, or close to it, indicated by the huge price swings (especially the last thirty minutes) of Friday's trading session. Billions of dollars are sitting on the sidelines waiting for the opportune time to jump back into the market, and the swift rise to nearly 300 points on the plus side about 25 minutes before the market close on Friday gave us a good indication of what can happen when that money comes pouring back into the market.
VFC's intention is to already be vested in the appropriate stocks when the market recovers and the upswing begins.
Chasing stock runs is not any fun, and usually ends up costing you money, but being along for the ride on a nice run makes a whole investing career worth it. The key is to do your homework and find the runs before they happen, then buy and sell with a plan. In my opinion, it's easier to bargain shop in the stock market when the market is down because many stocks are undervalued and oversold, giving the informed investor a chance to move in before a rebound. In up markets, many stocks are overvalued, overbought and trade at too high of a price to earnings ratio, leaving little wiggle room if a sudden correction hits. In a down market, many stocks are actually more secure investments because the downward risk is reduced because the stock price is already deflated.
In short, now is the time to BUY.
In the first installment of VFC's Bear Market Picks, Nordstrom (JWN) was listed as a good high-end retailer that should rebound nicely when the economy turns around and the market rebounds. A good alternative to JWN is M, Macy's Inc.
Macy's stock, M, may seem more attractive an investment than JWN for the small investor because it's share price is half that of JWN, but the Market Cap of each company is nearly identical (4.17B for M, 3.96B for JWN). It may feel better for some investors knowing that you can have two shares of M for the price of one JWN, but I look at an investment in either one of these companies as virtually identical, and for that reason, I suggest only investing in one or the other for the sake of diversification.
Whether we are at a market bottom or not, I think shares of Macy's, as well as Nordstrom, still have room to drop due to the dismal holiday season that market analysts, and the companies themselves, predict. 3Q estimates have already been dropped, and guidance for 4Q and year-end have also been dropped. The slowing economy has people keeping their dollars in their pockets, and the high-end retailers will take the brunt of the economic slump as people look for cheaper alternatives to their luxury items.
Macy's is not going anywhere as a company, however, and when the market and economy begins to rebound, Macy's (M) will also rebound, rewarding patient investors.
Macy's has suspended it's share buyback program to leave it's large amount of cash on hand in tact (approx $700 million) and ease the impact of the slumping sales in this slumping economy. In the case of an extended economic slump, Macy's has bank line-of-credit in place with JP Morgan-Chase and Bank of America to the tune of $2.0 billion, but Macy's has not yet needed to touch that line.
M is a victim of the market conditions and the economic slump, but the Macy's name is strong, they have lots of cash on hand and will be primed for a turnaround when the market rebounds.
I've already chosen to throw money into JWN, but if I had chosen M, I'd be using the same strategy of investing as I am with JWN which is to start buying now and increasing the buys as the stock drops lower. While the expected dismal results should drop the stock price even lower, there is the chance that if the market is at bottom, M is also at bottom with declining sales and poor Q3 and Q4 performance already priced in. For that reason I say and purchase in the $10 range is a good buy.
- A prolonged economic slump keeps Macy's from rebounding it's business anytime soon adding to more downward pressure on the stock price.
- Macy's is forced to tap into the Bank line of credit after burning through cash to sustain operations during the economic downturn, again adding to downward pressure on the stock.
- M can at least double when the economy picks up steam and the market rebounds, especially if the company does not need to tap the credit line.
- As the economy rebounds and sales increase, Macy's can restart the share buyback program giving the stock price upward momentum.
Buy anywhere in the ten dollar range, jump on this stock if it approached five dollars and hang in there until the market and economy rebounds.
Microsoft (MSFT) is one of the world's strongest companies and is always a safe investment, in my opinion. Right now, with the share price slaughtered by the slumping market conditions, it's as safe a time as ever to invest in MSFT.
Not too long ago, MSFT was trading near the mid thirty dollar range, up almost ten bucks from a year earlier and in the midst of a share buyback. Once the market took a hit, so did shares of Microsoft and what we have is MSFT on sale for approximately twenty one dollars.
MSFT is trading at 11.5 times it's earnings (Price to Earnings), below average for the normal P/E of Microsoft.
Microsoft's record speaks for itself, and this stock is trading down solely as a result of the current market conditions and in no part is it due to business failures.
With Yahoo's share price down to a dismal 12 bucks, it's likely Microsoft will once again attempt to buyout that company at probably 10 dollars less than what they offered earlier this year. A combined Microsoft-Yahoo could put a dent in Google's dominance of the Internet advertising realm.
MSFT is a great investment at this price, and accumulation is the way to go. One of the safest bets out there to rebound with the market.
- There is little risk with Microsoft, but there is always the possibility that competing companies will come out with products that eat away at Microsoft's market share.
- A prolonged economic slump can impact Microsoft's long-standing viability.
- Large institutional ownership keeps the price relatively level for an extended period of time.
- Microsoft could rebound to above thirty in short time after the market rebounds.
- Strong cash position will allow Microsoft to whether the economic downturn.
- One of the world's strongest and most stable companies with a nice dividend.
BUY now, accumulate and wait for the market turnaround. The poor market conditions that killed the Yahoo! stock (YHOO) may save Microsoft and it's investors billions if they re-attempt a takeover.
Yahoo! is a good bet for a rebound for a couple of reasons. The first reason being that the share price has been hammered along with the market and will be poised for a general rebound, and the other being that Microsoft may decide to swoop in and re-attempt to buy Yahoo!, as they did earlier this year when Microsoft offered $33 a share for Yahoo!. Yahoo!'s share price spiked up about ten dollars to near the price of the offer. Lately, it's been rumored Microsoft may offer 22 bucks a share this time, which would be good for another ten dollar price increase.
Yahoo! is still number two in the search engine business, and the Yahoo! name is still a huge player in Internet advertising. The YHOO stock will be primed for a rebound when the market rebounds and advertising revenue picks up again.
The chance of another Microsoft buyout offer is icing on the cake and the offer could come at any time.
- Yahoo! fails to come up with a solid business plan and the stock continues to decline.
- Yahoo! fails to reach agreeable terms with Microsoft or any other potential suitors or partners.
- A prolonged economic slump hurts Internet advertising revenues.
- Yahoo! rebounds to pre-crash levels when the market turns around.
- Improving economy opens up additional advertising revenue.
- Microsft swoops in with another offer to buy Yahoo!
- Yahoo! partners with a company other than Microsoft.
Buy YHOO now and wait for one of the following scenarios.
- A general rebound with the market when the market rebounds.
- Microsoft makes another offer for the company giving us a large spike in share price and an opportune time to sell for a nice gain.
- A partnership with another company is announced.