Secular Bear Fishing: a sporting proposition
Charlie is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Someday we will look backwards and discover the secular Bear that has been stalking us has retreated, all the analysts will smile and say "I knew it" when it does no good at all. Until then, it's best for me to presume the secular Bear is NOT in retreat, he's just off fishing....for MY stocks! Key clues we are out of Bear reach I have yet to see: seriously low, attractive P/Es: like 7,8 and massive panic sell offs across the board, while problems solved are more common than problems looming. We also see and hear periodically growls and thrashing as various indexes approach their "leaving Bear Country" signs at S&P 500 Index 1520 or so, then take a brisk dive. I see way too many structural, embedded dangers, especially in the government sector, that remain unresolved to declare the bear in retreat. That doesn't mean I'm retreating any more, I am instead, a fishing fool! (ha) As bond and bond fund prices sink, perhaps rapidly, I am looking to hook fat STOCK lunkers. These are VERY special fish, stable, growing slowly, and producing excellent fat, er, I mean dividends, that will take the place of Bonds in my portfolio at least until Bond yields get above 3%. I think of FORD (NYSE: F) as one. F's growing sales, good products, stable management, improving finances, and good dividend, just increased, tell me its nicely on track. The F pension fund shortfall leaves me nervous. As usual, there's no guarantees, but then that's Bear Country.
If you've ever fished in Bear Country, you know it's dangerous but sporting. It allows me to see which stocks likely will survive and thrive, while hooking them at less than premium prices. I don't mind if my target stocks go down in the short run. As a matter of strategy, I NEED them to go down, so I can build my portfolio at rational prices. My clues for these: they have good basic businesses, are well run, yields over 3% and P/E less than 11. AND, when they get beat up inexplicably, their P/Es go under 10. Its best, but not essential if they have good growth prospects. It is REQUIRED that they be able to doge Mr. Bear and survive. One "survival trait" I look for is lower debt loads and the ability plus discipline to restructure debt at the current very attractive rates. Lots of cash on hand is even better. I see these characteristics in F and also CORNING (NYSE: GLW) with a 3% yield, lots of capital and cash. I consider GLW a buy below $12 and F a buy under $10 as I rebuild my portfolio.
I am currently stalking a lunker that I sense the Bear stalking, quite risky, so I'd rather give up the fish than get too close at the wrong time. I'd MUCH RATHER hook that fish after the Bear has run it around a bit and given up. I currently see APPLE (NASDAQ: AAPL) as this kind of stock: attractive P/E near 10, a little better if it gets beat down again. Lots of cash on hand (Bear spray) and in demand products, AAPL meets many of my clues, so I am carefully watching for the chance to sneak some more in my net- warily, under $440/sh.
Meanwhile, I'm cautiously scouting for some fat ones not yet on the Bear menu like PROCTOR & GAMBLE (NYSE: PG). PG would fit my requirements perfectly, but not at the price and P/E I see now- near a 52 week high, P/E over 19, and less than 3% dividend. I can wait for some panic or other to move PG to a more rational price, like say $60/sh. And if it doesn't get there, no matter, some other prospect will do.
Some other shadows of future growth and earnings get my attention when I really should be looking elsewhere. I'd like to find these prospects in my portfolio cheap, and then watch them turn into desireable fish. This can be frustrating, because sometimes the "fish" is just another rock with the illusion of fins. Some I see from far off and can't tell for certain unless the Bear "runs them around a bit". One I have my eye on is 3D SYSTEMS (NYSE: DDD)- its P/E is so astronomical and its Hype is so noisy, I cant tell from here if its a rock or a fish, but recent declines and high short interest suggests a chance for better buying. So I am content to wait for DDD to dash about to confirm my theory or not. If DDD takes out of the pool, as you chase it, to ever higher and higher prices, I will utter a few choice curse words and look for another fish. Or, if you chase it as the Bear gets interested and the Bear gives you some exercise leaving DDD for me at some rational price, I can easily net it later on my terms. AND if you chase DDD, the Bear chases you, and all three of you dash right by me out of the area, I will just smile to myself, enjoy the show, and check out that other huge fish you left behind and set in motion so I could spot it.
SkepikI has positions in Apple, Ford and Corning mentioned above. The Motley Fool recommends Corning and Ford. The Motley Fool owns shares of Corning and Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!