In this market, I want to be a bottom-feeder. I do not want to pay for growth. What I want instead is a real deal; a solid value. If you want to find some attractive trades in this market, I suggest you screen for stocks that are very close to their 52-weeks lows and have lots of cash in the bank.
I think the broader market has further to fall over the very near term. We’re in that lull between earnings seasons, and investors are much more likely to pay attention to bad news. If we get a further correction in share prices over the coming weeks, then we’ll have a good entry point for new positions. My best guess is that we’re not quite there yet.
Right now, I’m finding all kinds of good value in this market. The key question, of course, is whether or not the broader market will turn upward going into 2011. That’s why I want value stock-picks at this time, because it’s a 50/50 call as to whether the broader market will resume its upward trend from late August. The bulls and the bears make an equally compelling argument.
There have been a lot of stocks that haven’t done well this year, even when sentiment changed dramatically just a couple of months ago. This trend occurred in large-caps as well as more speculative issues and it’s not a particularly healthy sign. It reflects, I believe, the choppy performance within the economy itself. Railroads are saying that business is getting better, while home builders are not.
The two best sectors for equity speculators remain precious metals and U.S.-listed Chinese shares. The best value is in Chinese stocks, many of which are trading for very reasonable valuations, with lots of cash in the bank. As we all know, precious metal shares have been very strong this year and, while many are fully valued, they are much more likely to remain this way with the current price strength in spot prices.
I’d mix it up if I we’re taking on new positions in this market. I wouldn’t create a speculative portfolio without some exposure to gold, silver, and/or copper going forward. The longer-term fundamentals for precious metal prices are compelling enough for investors to be buying on any price weakness in my view.
Currently, institutional investors are waiting for a catalyst to do something. They’re buying stocks, but not with any fervor. My best guess is that negative investor sentiment won’t be strong enough to keep big investors from buying stocks in this market. There just isn’t anywhere else for the big money to go.