The Stock/Investment Thread

[wiggin]

Well, remember is was seriously undervalued beforehand. Taking into account their revenue estimates for 2011, you're talking about a P/E of 14.5 back in June. Given that they surprised to the tune of 11% above expected EPS, it's not surprising that people jumped on board again (and that's 11% of a pretty big number to start with). My guess is that this past quarter has been a referendum on the new(ish) leadership at Google, and coupled with various other concerns (notably antitrust stuff), investors adopted a 'wait and see' attitude.

Obviously I didn't put my money where my mouth was - I don't have a few thousand dollars to gamble with - but I thought it was abundantly clear the stock was undervalued. Now, maybe not so much. The whole Google+ thing might add some more value if it takes off, but that's a big question mark given the utter disaster their previous forays into social networking have been.

[wiggin]

What do you guys think about Bank of America? I mean, obviously it's in the shitter right now, but is it potentially a bargain deal for a investing horizon of a few years? I'd say it's a big gamble, but the stock is trading at bargain-basement prices. While I don't doubt they have problems, their general soundness has been improving, albeit with some big charges from dealing with the whole Countrywide fiasco. Is it worth a gamble?

[Dreadnaught]

I worry that it could be the next Citi —*a giant zombie bank holding company with too many moving parts (and too many liabilities) to really outperform its peers. BofA has a better management than Citi of course, but it's also a massive political target that is running losses.

There is also some well-founded speculation that they will need to raise about $50 billion for capital requirements. That would almost undoubtedly require diluting stock or reducing investments/other activity.

Long-term you may be right, but I think there's a decent amount of risk to that kind of bet.

[wiggin]

Yeah, that's more or less my thinking. I think the concerns about them needing to raise more capital might be overblown, though. Most actual analyses seem to indicate they won't, but clearly investor sentiment doesn't agree.

[GGT]

Well, if you find yourself using words like "gamble", then is it really an "investment"?

Personally, I think buying any bank stock in today's market is only something traders should do, HFT at that. All the banks have too much exposure to bad loans, bad credit, leverage, CDOs and SPVs, plus trading desks having tried to play the eurozone or currency trades.

We should never have let commercial banks get gummed up with investment banks. Even if there's profit to be found "somewhere" in that mix.

[wiggin]

Stocks have had a tough few days lately on generalized fears about the global recovery, especially given anemic growth in the US and elsewhere. Obviously this will bottom out at some point soon; the question is when and which stocks are particular bargains right now?

I'm personally thinking that some homebuilding-related stocks like Home Depot or Caterpillar might be worth a look. They've recently fallen off a cliff, but I'm relatively bullish on the medium term for housing. While there's still some overhang from foreclosures and the like, but the longer term data looks poised for a recovery. Housing starts are at a ridiculously low level and have been for a very long time. At the same time, household formation dramatically dropped as people economized on housing. That isn't possible indefinitely, so there's a lot of pent-up demand and a dearth of new housing supply. Sounds like it's poised for a turnaround in the next year or so. Buying up HD and CAT at the current slump for a few years might not be the worst idea.

Of course, if you just want to bet the market's in an overcorrection, there's probably better stocks to buy in the short term than housing-related ones. Any ideas?

[wiggin]

I'm personally thinking that some homebuilding-related stocks like Home Depot or Caterpillar might be worth a look. They've recently fallen off a cliff, but I'm relatively bullish on the medium term for housing. While there's still some overhang from foreclosures and the like, but the longer term data looks poised for a recovery. Housing starts are at a ridiculously low level and have been for a very long time. At the same time, household formation dramatically dropped as people economized on housing. That isn't possible indefinitely, so there's a lot of pent-up demand and a dearth of new housing supply. Sounds like it's poised for a turnaround in the next year or so. Buying up HD and CAT at the current slump for a few years might not be the worst idea.

CAT is doing pretty well based on Q3 revenues/profit and Q4 projections. Might it be a leading indicator for a modest recovery in housing and construction?

HD has also gotten some good ratings so far, and they look better positioned than Lowe's. Don't know if either are as much of a buy for me as it was in August, but still something to think about.

[agamemnus]

It's mostly that the economy is Just That Bad.

The market as a whole is in a slight over-correction, but some stocks continue to be vastly over-priced.. Google's and Apple's stock are still overpriced! (both skyrocketed in the past few weeks)

[wiggin]

I think Google isn't actually too bad given their revenue growth, but it's certainly not a bargain like it was earlier in the quarter. Apple's valuation always looks stratospheric, but then they deliver yet another blockbuster quarter and it's hard to argue with success. I personally hate Apple with a passion, but I see the argument for their stock still having plenty of room left to grow - especially based on PEG ratios rather than classical P/Es.

[agamemnus]

Apparently the "stock pundits" think Google's stock price rise is because of the apparent success of Google+, apparently giving 50 cool bills of extra valuation to the company.

I personally hate Apple with a passion, but I see the argument for their stock still having plenty of room left to grow - especially based on PEG ratios rather than classical P/Es.

PEG sounds good on paper, but there's a major problem with looking at PEG -- it considers not just earnings but earnings growth (), which makes it exponentially more likely to be incorrect in the future -- it's predicting two variables at the same time, which are themselves based on a complete analysis of the company. If you don't do that analysis, valuing a stock based on PEG is just asking for trouble.

P/E works well for relatively static companies because you know the P/E won't change much, and you can thus consider a company to be under or over-valued based on the P/E. PEG working for dynamic companies? That's like saying "there's a fire, so I'll throw some gasoline into the mix"...

[Dreadnaught]

Wish I hadn't been in my hole today so I could perhaps buy something. But we have to see if the declines were decoupled from the debt debate and continue tomorrow. If so, I may go for some dividend staples that have lost some value in the general decline.

[wiggin]

Apparently the "stock pundits" think Google's stock price rise is because of the apparent success of Google+, apparently giving 50 cool bills of extra valuation to the company.

Stock pundits are full of shit. They always are. I love when the daily fluctuation in the stock market is attributed to one reason or another. Rarely is the specific 'headline of the day' relevant to stock prices. They just see the trend, pick a story that seems to fit it, and write up some BS. Market fundamentals are far more important, generally. In this case, Google's stock was undervalued due to concerns about changes in their management and antitrust investigations, but a remarkably good quarter coupled with upwardly revised earnings guidance made people realize the stock was a bargain. I doubt Google+ had much to do with it at all.

PEG sounds good on paper, but there's a major problem with looking at PEG -- it considers not just earnings but earnings growth (), which makes it exponentially more likely to be incorrect in the future -- it's predicting two variables at the same time, which are themselves based on a complete analysis of the company. If you don't do that analysis, valuing a stock based on PEG is just asking for trouble.

P/E works well for relatively static companies because you know the P/E won't change much, and you can thus consider a company to be under or over-valued based on the P/E. PEG working for dynamic companies? That's like saying "there's a fire, so I'll throw some gasoline into the mix"...

The problem with Apple is that their revenues have been growing at such a remarkable clip (despite their already swollen status) that PEG seems to be a better predictor than P/E. I personally don't like Apple because I feel their revenue is based on a very narrow base and is predicated on them keeping the same reputation for high end design and UI indefinitely (which may or may not have much to do with Jobs' leadership), which is unlikely in the long run. Couple that with a corporate culture of secrecy that turns me off, and I'm not interested in investing in them. Not to say that the stock isn't worth a buy for many people.

Wish I hadn't been in my hole today so I could perhaps buy something. But we have to see if the declines were decoupled from the debt debate and continue tomorrow. If so, I may go for some dividend staples that have lost some value in the general decline.

Not a bad strategy for medium term to long term investing. I seriously doubt the decline had anything to do with the debt deal; if anything, shares should have risen and not fallen in response to the news, but they were pretty hammered for the last two days (and last week wasn't much prettier). I think it had a lot more to do with pretty bleak economic data coming out - poor employment numbers, downwardly revised GDP numbers in much of the developed world, disappointing earnings in the auto sector as knock-on from the earthquake/tsunami, and of course the all-important consumption drop. These are the fundamentals, and they're not looking good.

The only question is to appropriately time the bottom here... but things are looking cheap enough now that I'd probably dive in one way or another. Thinking about it again, though, don't you think some 'boring' dividend paying stocks might be slightly overvalued during a market drop like this? There might be a 'flight to safety' kind of behavior here, especially for consumer staples and the like. Might have to choose your dividend-paying stocks carefully. Perhaps some utilities?

[Dreadnaught]

Mmm, I don't think things are that cheap. Today was just 2%. I agree it's about timing the "bottom", but that itself begs the question of whether this was a snap decline or the start of longer market doldrums. I'm slightly inclined towards the second option.

[wiggin]

The market has more or less erased the 2011 gains so far in the slide for the last week or so... depends on the stock, but there are some bargains out there; it's not just the drop from today.

As usual, I don't really look at stocks with the idea of a quick buck, so it doesn't really matter if there will be a sharp uptick or a general malaise for a while. IMO, if the stock is a good value, I should buy it one way or the other and just wait until it improves enough to be worth selling. I hate paying the ridiculous short-term capital gains taxes anyways.

[Dreadnaught]

Sometimes I wonder if the short-term capital gains tax actually increases volatility. Though some have argued the opposite.

[GGT]

Sometimes I wonder if the short-term capital gains tax actually increases volatility. [CapitalGainsTaxes ]Though some have argued the opposite.

I didn't read the whole thing, either. Didn't notice if HFT was mentioned in there....those millions of trades per minute, getting penny profits in aggregate that turn into thousands or millions. I doubt they'd be doing that if a HFT capital gain tax of 30% was introduced, but who knows.

But even when the rate was 28%, people still bought and sold, making profits while paying the higher tax. aggie, you're right that value buying includes figuring out purchase price/sale profit/gains tax over time, with an incentive to hold long-term while a company grows. That's almost an old fashioned plan now, to buy a stock and expect to keep it for decades, on the expectation it will grow (through ups-and-downs) and become more valuable over time.

Today's traders don't do that, but pump up volume and volatility, and skew the numbers. Enter the small retail investor trying to buy low/sell high, looking for real value over time, but they get trapped into "trading" instead of "investing". When things start to tank, the panic reaction can make the little guy sell and lose....and next month what they sold actually recovers.

[agamemnus]

TL; DR...

Well, didn't read most of it, but....

* One would think that an increase capital gains taxes makes stock-holders hold on to a stock longer because taxes are less frequent and thus the interest on the tax savings improves performance of the stock buy.
* On the other hand, investors will less likely re-balance their portfolio yearly due to the tax penalties, thus making (negative) changes of the investor's valuation of a company have a smaller impact than with lower taxes.. thus increasing grain-iness in the stock price and thus volatility.
* On the other other hand, since most investors are actually huge hedge funds that run computer algorithms 24/7 and make bajillions of trades a day, they will pay capital gains taxes anyway, so I don't think the tax changes the volatility at all, and it would seem that high capital gains taxes only hurt small-time investors...

[Dreadnaught]

What gets me is that all people have different goals, whether it's long- or short-term. I imagine short-term traders make up quite a bit of volume. The higher tax rate makes the margins for profit much slimmer, which in turn could encourage them to make riskier bets or place different orders than if the capital gains tax structure was flatter.

Or am I totally wrong?

[GGT]

No, I don't think you are wrong or off-track, Dread. Short-term traders and HFT have been fuckin' up "traditional technicals" for quite a while now. Just not many who admit that those dealing in millions (vs hundreds or thousands) are split into two investor categories: fund/portfolio investment managers and HFT/short traders.

You once chided me for suggesting two distinct markets. One for regular people investing for their retirement, in a long and slow process with moderate returns; and another for the gamblers trading on high volatility, high risk, and super-high returns (or super-high losses).

There really is a difference between those trying to make capital last over time, and those trying to exploit time to make more capital.

[wiggin]

These large volume traders provide a useful service as market makers, and there's plenty of losers in that crowd as well. I'm not upset over high volume trading; while sometimes it can increase volatility, it can also decrease bid-ask spreads and the like.

[GGT]

These large volume traders provide a useful service as market makers, and there's plenty of losers in that crowd as well. I'm not upset over high volume trading; while sometimes it can increase volatility, it can also decrease bid-ask spreads and the like.

Sure, we've all heard that explanation. How 'market makers' are valuable and provide liquidity. How they create buyers/sellers on the other side of every transaction, and don't really pick winners or losers. How they take high risks and sometimes lose. Sounds right out of a page of Blankfein's congressional testimony.

HFT isn't quite the same as high volume trading, though.

[Dreadnaught]

My question isn't about high frequency trading (buzzwords), but about how short-term taxes could impact short-term stock behavior.

[agamemnus]

Hmm: the tax rate increasing means that companies get a lower return, which would potentially make the companies themselves more cautious in their deals, since the upside is capped and the downside isn't. (except with tax write-offs in the case of a bad move, something GE really has going for it as a conglomerate) Perhaps funds would do the same, if their own investors are subject to capital gains taxes..


----

Anyway.. crazy day:

* It looks like the stock market imploded today, with foreign companies falling as well as domestic companies. That is despite staggering profits by some companies... seems like a complete panic.. taking money out of profitable companies and putting them into an otherwise worthless metal (gold). I guess the stock market expects that because of the only-2-billion-dollars-cuts-mostly-in-the-latter-part-of-the-10-years debt deal, the market thinks most of us will be eating fried rats and living in tents in a few months.


* To counter speculators, apparently Japan and Sweden have artificially lowered the values of their currencies by flooding the market with them (the currencies), and thus stabilizing their export markets.

[earthJoker]

I am considering to buy gold to insure myself against a possible inflation caused by the countermeasures against the Swiss franc. It's not like I will get a lot of interests anyway now the national bank has lowered the interest to 0.0%. Gold seems to be the only thing that even rises against the Swiss franc. Investing in foreign markets seems to be a stupid idea at the moment, the currency insecurities are just way to large.

[wiggin]

Anyway.. crazy day:

* It looks like the stock market imploded today, with foreign companies falling as well as domestic companies. That is despite staggering profits by some companies... seems like a complete panic.. taking money out of profitable companies and putting them into an otherwise worthless metal (gold). I guess the stock market expects that because of the only-2-billion-dollars-cuts-mostly-in-the-latter-part-of-the-10-years debt deal, the market thinks most of us will be eating fried rats and living in tents in a few months.

I don't believe this for a minute. The reason for the market slide for the last 10 or so sessions has nothing to do with the debt deal; it has everything to do with the truly awful economy. This is a correction; people look at growth, production, consumption, and employment numbers and realize we're not really recovering. I can only hope that the Fed gets their heads out of their asses and intervenes again; that will probably help stabilize some of the most irrational fears.

* To counter speculators, apparently Japan and Sweden have artificially lowered the values of their currencies by flooding the market with them (the currencies), and thus stabilizing their export markets.

I assume these are sanitized interventions, right?

I am considering to buy gold to insure myself against a possible inflation caused by the countermeasures against the Swiss franc. It's not like I will get a lot of interests anyway now the national bank has lowered the interest to 0.0%. Gold seems to be the only thing that even rises against the Swiss franc. Investing in foreign markets seems to be a stupid idea at the moment, the currency insecurities are just way to large.

Buying gold seems to be a really really bad idea. There's no doubt that its value is just being propped up by speculation, and there's no way to know when the bubble will burst. If you need the cash in the short term, just bite the bullet and deal with fluctuations in the value of the franc. If you don't, then invest it in something less foolish than gold as a currency hedge: say, various commodities, maybe an REIT, etc.

[earthJoker]

Buying gold seems to be a really really bad idea. There's no doubt that its value is just being propped up by speculation, and there's no way to know when the bubble will burst. If you need the cash in the short term, just bite the bullet and deal with fluctuations in the value of the franc. If you don't, then invest it in something less foolish than gold as a currency hedge: say, various commodities, maybe an REIT, etc.

Real estate is not a good idea, the Swiss marked is overheated at the moment, unlike the US it never went down in 2009. The mortgages rates are on an all time low, you can only expect them to rise.
Well I will have to look at monthly rates of inflation and my interests, I don't need to act before I actually lose money and I doubt I can lose a lot through inflation within - let's say - a month.

[wiggin]

Real estate is not a good idea, the Swiss marked is overheated at the moment, unlike the US it never went down in 2009. The mortgages rates are on an all time low, you can only expect them to rise.
Well I will have to look at monthly rates of inflation and my interests, I don't need to act before I actually lose money and I doubt I can lose a lot through inflation within - let's say - a month.

I wasn't thinking a Swiss REIT, eJ, that wouldn't necessarily help you much. I'm sure you have access to some foreign funds that might do the trick. IMO, though, a better hedge would be a commodity with less volatility than gold. There's other methods out there as well.

Dread: I still think that construction stocks (Caterpillar in particular) have been hit more than necessary lately, and they might be worth taking a chance. Other cyclic stocks (e.g. Alcoa) might be worth a look as well; they tend to get hammered during bad news periods like this one, even if the overall trend is towards a (weak) recovery. I haven't seen any particular bargains lately, though.

[earthJoker]

I wasn't thinking a Swiss REIT, eJ, that wouldn't necessarily help you much.

OK, well but that would than add currency rates insecurity. I will wait for the next inflation numbers first. I still get 1% interests on my savings account ATM.

[Lewkowski]

At what point do you stop having the government intervene with the economy? QE99?

[Dreadnaught]

Wednesday was a bad day to buy a bunch of Verizon stock. But I'm making a long-term investment as a dividend producer and a dominant US wireless carrier (seems like we're heading for a duopoly). Plus they seem to be trying to making nice with their minority partner.