I have to agree with Briefing that there are still pockets of overvaluation in US Stocks that can just get you killed,
if you stay in them. Valuation is the theme.
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Alternative Energy Stocks: With the Nasdaq trading back down to the 1700's, an observation comes to mind. The 18-month bear market hasn't been particularly explosive, but more properly fits the description of death by a thousand cuts. At this point, the idea is to stay away from those areas that might still contain another thousand cuts and we continue to believe alternative energy is an area to avoid. Two years ago it was the Internet sector -- then momentum investors shrugged off that bloodbath and moved to the optical networkers. They subsequently watched the brightest star in that group, Juniper Networks (JNPR), trade from a 52-week high of 244 down to 122 -- then down to 61 -- then down to 30 -- and finally down to today's levels in the 14's. For those of you counting, that's getting cut in half four times (plus an extra point or two). Or alternatively, that's a 94% drop from its all-time high where 100% is the most you can lose. One final way to look at it -- it would take a gain of roughly 1,650% for JNPR to recover its all-time high of 244. That amounts to about 30 years worth of 10% returns. Simply because an issue has been cut in half, this doesn't mean its valuation is attractive. More importantly, this isn't a market in which risk is being rewarded and the risk/reward dynamics on alternative energy are perhaps the least attractive in the market. Plug Power (PLUG) trades with a trailing Price/Sales ratio of 90x, Ballard Power (BLDP) carries a Price/Sales multiple of 56x and H Power's (HPOW) P/S is roughly 46x. Not exactly sterling financial fundamentals, yet to top it off none of the former businesses is posting any kind of reliable sales growth. This isn't to say we deny or dismiss the technological potential of the group. However, technological revolutions are funded on the backs of speculators -- after the Nasdaq's trailing 18-month performance, the pool of speculators is beginning to run dry. -- Michael Ashbaugh, Briefing.com |
