5/10/2012 7:06 PM ET|
10 stocks for the bad old summertime
The road ahead promises a lot of ups and downs, something we're starting to see already. A list can help you recognize and snap up bargain stocks.
Buy on the dip? Sure.
But which dip and when and what stocks?
I think the next few months will be especially treacherous to navigate. Yes, especially, even compared with the falling market of the past week or so.
That's because there will be more than enough volatility to dangle bargain prices in front of your eyes. And then to send some of those prices down even further. And there will be enough upside volatility to present plenty of opportunities to buy into rallies just before they fade.
In other words, the next few months will be a great time to buy high and sell low.
However, some of the bargains will be real. Investors will get a chance (or two or three) to buy stocks they'd like to hold for the long term at great prices -- if they have the discipline to stick with them during the scariest days. There will be a few stocks that outperform no matter what the overall market does because they dance to their own tune -- if you can hear it above the clatter of falling knives. And there will be stocks that have strong long-term trends at their backs, but where the trends have been obscured by the current market volatility.
Let me give you a quick sketch of what looks like a volatile summer, and then 10 specific stock ideas to fill out those three categories of stocks to buy on this dip (or the next one).
Greece is the word
Right now, stock prices are being driven by the eurozone debt crisis -- and particularly by the return of the Greek debt crisis to the front page of the financial section. This has ratcheted up fear and driven general selling of anything with any risk. Sell all stocks. Buy U.S. Treasurys even with the current negative yield after inflation. Buy dollars and sell euros (to an extent) and dump "risk" currencies such as the Australian dollar or the Brazilian real even though, in the medium run, it's hard to make a fundamental case for the dollar.
With the U.S. dollar on the rise, the prices of commodities priced in dollars (oil and copper, for example) are falling. Gold is also in decline as the dollar appreciates (and as the likelihood of inflation decreases and as the Federal Reserve and the European Central Bank seem determined to remain on the sidelines).
Of course, the Greek debt crisis and its sidekicks, the Spanish and Italian debt crises, aren't the only volatility-inducing games in town. There's also fear that the U.S. economy is slowing after the May 4 disappointment on April job growth. There's also fear that China's economy is headed for a harder landing than expected.
A positive jolt
I think that by midsummer there's a good chance that both of those latter two fears will be shown to be less of a worry than they seem now.
For example, the JOLTS (Job Openings and Labor Turnover Survey) data released on Tuesday suggest that the weak job growth in March and April is a result of a seasonal borrowing rather than a replay of the collapse of job growth in the summer of 2011. (In 2011, after strong growth in February through April, job growth collapsed to 54,000 in May and 18,000 in June on its way to zero net jobs created in August.) The optimistic theory is that the drop to just 115,000 net jobs created in April, after a only slightly stronger March at 154,000, is a result of warm weather in January and February moving job growth to those months from the spring months.
The JOLTS data -- which track the number of job openings and the workers voluntarily leaving their jobs -- pointed to a stronger job market than that reflected in April's jobs numbers.
The consensus among economists right now is that both the U.S. and Chinese economies will show stronger growth in the second half.
Doing the drachma
Of course, even if that turns out to be true, for it to have any positive effect on the financial markets we first have to get past the fear that Greece will default (again, but this time officially) and abandon the euro as its currency. This will set off a chain reaction that engulfs Italy and Spain in its arc of destruction.
There are two problems with the current round of the Greek crisis. First, it is really, really serious. It is likely to force Greece out of the eurozone, and it could cause the collapse of the Greek banking system. Second, in all probability it is going to drag on for quite a while. Two months is my estimate now.
May was supposed to be a very busy month in Athens, with inspectors from the troika of the International Monetary Fund, the European Central Bank and the European Commission arriving to verify that the Greek government was living up to the conditions of the rescue package. The Greek government was supposed to be putting further budget cuts in place, and designing its next budget and a long-term plan for an additional $15 billion in budget cuts for 2013 and 2014.
I'm sure you can see the little problem with that: There is no Greek government. And, odds are that Greece is headed back to a new election in June. Even if that election results in a functioning government, that government is extremely unlikely to be strong enough to meet the troika's deadlines at the end of June.
Then it will up to the troika, which in this instance means mainly the IMF, to decide if it will release the next round of money for Greece, scheduled for August. The likelihood, European analysts say, is that the Greek government can scrape together the money to keep the doors open in June and July. But the demands of August -- a repayment of $3.8 billion euros on long-term debt, for example -- are beyond the means of the country without the troika payment, they add.
In August, then, the IMF and its European partners will decide whether or not to to pull the plug on Greece.
Unless, of course, a run on Greek banks takes place earlier as any Greeks who can get their money out of a Greek bank rush to do so before a Greek government freezes accounts and forces a massive devaluation on a conversion of euros to new drachmas.
The panicked but totally justifiable withdrawal of deposits from Greek banks would lead to a collapse of the Greek banking system, and the Greek government would be without funds to prevent such a collapse.
The short conclusion is that no one knows what will happen, the worst-case scenarios are really scary, and the crisis will go on and on with the financial markets increasingly on edge.
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First off, I recommend Frontier Communications (FTR). They have put significant work in upgrading their infrastructure last year, and it should start paying dividends. That is somewhat a pun because they do pay around a 10% dividend. While phone landlines are on the way out, DSL is still hanging around and cable is doing well. I think Frontier is a well-managed company that has hit its lows for the year and should bounce around while still paying you that 10%.
And CNQ. My past recommendation has taken a 10% hit. That makes it 10% cheaper than when I bought it. With oil prices dropping right now, I might put this on my watch list and wait for it to hit $30. A major trust fund or something or other invested heavily in CNQ last year when it was higher, so I'm not the only one waiting for it to produce. It's Canadian, and I think Canada is way better prepared for the next ten years. Just sayin'.
And another for the watch list is HL, a silver mining company. They did great last year and their stock tanked. Reason? No one knows. So when HL's bank account busts at the seams, and their small dividend goes up or whatever, that disparity won't last. I don't have the expertise to determine HL's near trend, but I would buy it at $4. A major analyst downgraded HL recently from buy to hold just for the reason of HL's stock performance, all the while saying that HL is doing better than ever. So see some upward movement eventually, and buy now on the dip.
But I am starting to realize that you aren't just blowing smoke, and that I would probably be better off listening to you than even to my gut feelings. (Witness my advice three months ago to plunge into the Canadian market, specifically with CNQ. Hopefully, I'm just premature a few months as I still can't see Canada as not the place to be.)
As far as having a finger on the pulse of this economy, you've got me beat. That pulse is so faint and erratic, I'm scratching my head and looking at you with a lot more respect these days, just for having the cojones to day after day put something in print and not do a bad job of it.
You look a lot spiffier in a suit than in a baseball cap. Nice picture. Reminds me of the song by ZZ Top...all the girls come runnin' for a sharp dressed man.
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[BRIEFING.COM] S&P futures vs fair value: -1.60. Nasdaq futures vs fair value: -1.80. U.S. equity futures remain under modest pressure even though most quarterly reports received since yesterday's closing bell have been better than expected. On that note, AT&T (T 35.60, -0.69), Boeing (BA 131.10, +3.55), Delta Air Lines (DAL 36.58, +1.63), Gilead Sciences (GILD 75.69, +2.83), and Yum! Brands (YUM 79.99, +2.51) all reported above-consensus earnings, ... More
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