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2005-06-11 :: Random Thoughts on the Market

  • This coming week we have inflation numbers being released and more Fed announcements in store for us.  Last week’s markets were roiled by talk of Stagflation –  slowing growth and rising inflation – until Thursday when the White House announced upward revisions in both CPI and GDP forecasts.  
  • The DJIA and the S&P 500 are off around 7% or so in this selloff, which really isn’t so bad.  We’ve gone a long time without a 10% correction, the longest in history, in fact.  However, if you dig deeper into the numbers you can see that over 50% of the publicly traded companies are trading below their 200 day moving average prices.  That’s painful.
  • Defensive stocks are benefiting from the flight out of my favorite sectors.  Sectors like food and beverage, drugs, and tobacco are holding up better than energy, metals, and infrastructure stocks.  These low/no growth defensive sectors will likely see continued short-term positive momentum, but in the end investors buy earnings growth and the fundamentals are still in place for energy, metals, and infrastructure stocks to be the long-term winners.
  • Nabors is a company I’ve written a lot about.  It is one of the cheapest stocks on the market with an incredibly high earnings growth rate.  This week, they announced a massive share buyback.  If you are looking for one company to own, this is it.  Their rapidly growing earnings will be spread out over fewer outstanding shares, making the shares you own even more valuable.  This, in my opinion, is likely to be the first of this sort of thing.  Energy, metals, and infrastructure stocks all are booking incredible amounts of cash and will continue to do so.  One of the best uses of all this cash is a stock buyback program, so look for the boards of directors of these companies to put that cash to use.  We will continue to build our position in Nabors in the accounts we manage and continue to look for similar opportunities.

As the week progresses, I hope to see the bottom formed last week to hold in the energy, metals, and infrastructure stocks.  If we can find a bottom in the chip stocks  –  in spite of the options scandal – and the bank stocks then we will be repositioning portfolios for the next leg up.

More later!