IMO, as long as the Nasdaq will continue to head North it will become easier every day to find some good value picks. The phenomena is quite simple: the money goes out of the conservative stocks like G, KO, F, MO, or whatever... to be poured in the QCOM, CSCO, NT, JDSU, USVO or whatever... As long as it will last, as long we will suffer. But it does not mean that value investing is out of date and should not be part of one's strategy.
I have just finished the reading of a research published February 14, by Ed Yardeni, Chief Economist at Deutsche Banc Alex. Brown. Titled "Is It A Bubble? -- Old Vs. New Economy Stocks", the analysis points to the extraordinary run-up of the Nasdaq against the S&P 500 and the broader market. A few excerpts may be useful to understand what's going on right now and to comfort those of us who are desperate enough to dump 100% of their old value stocks.
There are some staggering statistics in this article. Here are just a few:
-- The p/e ratio for the 100 largest cap Nasdaq stocks, using analysts' consensus earnings expectations for this year, is 100x, down from 237x using 1999 earnings.
-- The S&P 500 index, which includes 69 technology stocks, has a p/e of 24.
-- Nearly 70% of the stocks listed on the NYSE were down last year. So far this year, 68% are down (this number is probably higher as I am writing this). This stat alone gives a lot of credit to the theory that this Bull may be a Bear in disguise...
Now, back to the question: Is It A Bubble? Yardeni, obviously, thinks so. He points to similarities between the Nas' run-up and the Nikkei or Gold Bubbles. He sure has a point, and the graphs attached to his analysis are not reassuring at all (I can't publish them, sorry).
But he also writes that these bubbles usually burst when it becomes clear that expectations won't be met. Unfortunately, the present situation does not give much clue as when this end will come:
"In the past speculative bubbles attracted too much capital that led to excess production and capacity. Today, capital is pouring into the New Economy. Undoubtedly, some of these investments will be worthless. But, quite a few are likely to produce new products and services for markets that are increasingly global in scope. (...)
"Time will tell if the Nasdaq rally is just another bubble, or a legitimate valuation of the New Economy. Favoring the legit side is the impressive performance of earnings during the fourth quarter of last year, with S&P 500 operating earnings up more than 20% from a year ago. Also impressive is that the percent of negative earnings surprises was the lowest in several years."
Where are we heading? Not easy to tell, and most unsettling to make a balanced decision, don't you think?
As for myself, I won't hide the fact that I have taken positions on some tech stocks in the last few months. I felt that I did not really had the choice, and hope that my decisions were not based entirely on momentum, but also on value.
In the mean time, I also kept positions on true value picks however. Many have done awfully bad in the past year, particularly MO and MAT (now a very special situation). It sure is a big disappointment.
Even though my performance is nothing to be proud of in the last year, I would still recommend a few of my value picks: Donaldson (DCI), Tootsie Roll (TR) and Cedar Fair (FUN).
Do your own DD, but I am quite sure you will like DCI. This company shows double-digit growth for the last 10 years and should finish 2000 with earnings growth in excess of 20%. The company has a very manageable debt level, repurchases shares on a regular basis and raises its dividend every year.
Tootsie Roll has been discussed on this board before. Let me remind you of its incredible profit margin (around 18%), strong balance sheet and annual stock dividend. This is a keeper in any portfolio IMO.
Cedar Fair, or FUN, doesn't only have a nice dividend, it has shown good growth possibilities over the years. Peter Lynch recommended the stock in Barron's, back in 1993. The stock has done well since then if you look at a chart. 2000 should be a great year for this co. New rides on their way and acquisitions should pay off on the bottom line. Meanwhile, cash the dividend check and don't worry too much about day-to-day valuations.
Just my opinion.
MF |
