Beware of the government. Lesson learned. Still the best trade I ever made was selling a large holding in Philip Morris at the peak in 1997 when speculation surfaced that there would be a settlement with the government. The stock went up because people felt that would put an end to liability - I sold because it sounded too good to be true. Never would have imagined what turned out to have happened, but to this day I have never bought a tobacco stock again, though I have been inches from doing so several times.
Clearly you want to avoid the government's next target if you can predict it. But the tough thing for value investors is to avoid the government's current target, even though the risk appears to be in the price. The collusion between the Clinton administration and trial lawyers is bordering on criminal in my opinion, but when it comes down to investment I put my politics aside and bet on Clinton.
What are his next desperation targets in the last year of his presidency (and Gore's campaign issues)? Bank ATM fees would be one. Tobacco will continue to be flogged. HMOs may be passe, but I wouldn't bet on it. I think they're done with airlines. Gore's environmental thing should make us wary of a lot of utilities that burn coal, and rust belt America in general.
Speaking of rust belt America, I bought CAT at 35 with a stop-loss at 34 1/4 on Friday. I have watched this stock like a hawk for three years now, and I didn't think it would break 40. Now we're at a level where CAT hasn't traded since 1996. (We had a global economic crisis between then and now). Cyclicals are at an extreme in sentiment in my view, and CAT is among the first investors will go to to play the bounce, if not the recovery. The danger is that on fundamental analysis, if you really believe the US economy is going into a recession, CAT could go significantly lower. This is a trade for now - thats why I have the stop-loss. I would be looking for a sell point if the stock rallies. But one could also make a very strong case for CAT as a long-term investment at this level. This is a great company trading at a 3 year low. A cyclical stock, no doubt, but a company that in Buffett-speak will almost certainly earn more 10 years from now than it does today. (And to stop one counter-argument in its tracks, before you say earnings are at a peak, look at the last three years earnings. One could argue they are at a trough.) |
