BARRON'S: Eyeing The Bear. Excerpts from Barron's.......But
we haven't seen the technical bottom. ..... But the final capitulation to make people really scared
isn't here yet. We have a group of shorts we monitor, which even after
the declines still sell for 125 times this year's earnings and ....not impugning their quality, just their multiples.
Buettner: We will get a reasonably good bear-market rally. ....
The rally
won't be a tidal wave of buying but a drying up of selling.
....
The S&P 500 is still at over 20 times next year's earnings estimate, down from 27 or 28 times. I'm concerned that the standard forecast out there is a soft landing, and that there's a 50%-70% chance of it. But there's a one-in-three chance we have a hard landing, triggered in part by the wealth effect.
......
Q: Let's move on. How do you ply your trade?
Straus: We look for dynamic companies with accelerating earnings,
definitely with a P/E-to-growth-rate of under 1. That's the one thing that distinguishes us from other high-growth investors. We are very disciplined. ....
Buettner: On the long side I like companies with a high return on
invested capital and a relatively low P/E ratio. On the short side, I
love to find companies with high P/Es and very low returns on invested
capital. Those two factors usually converge, based on the actual cash
flows that come out of the business. We are also looking for catalytic
types of managements, who can build a business, understand the value
and then realize it. If the realization of value takes the form of a spinoff, or separate financing, or a welltimed share repurchase, or sale of the company, or deciding there's a better private market value
-- those are things we look for. On the short side, we look for companies with deteriorating fundamentals, not absolute valuation shorts. You can see it in the deterioration of cash flows, in advance of earnings.
Straus: In bear markets, we look for stocks with the highest valuations, because ultimately the bear market will get everyone. We are short some high-quality companies on a valuation basis, but that's
a temporary phenomenon. If you came back in three months, I'd be
surprised if we were short any of them any longer......But
the real opportunity in this market is to invest in a package of
beaten-down Internet stocks, hopefully those that are fully financed,
with interesting business prospects and legitimate business plans. The
Internet is not going away. I will give you five. Two, I hope, are
10-baggers. One might end up bankrupt in the next three years. |
