<<<Which is not to say there won't be bargains.>>>
The only problem with "bargains", is they are only bargains using the 90s as a yardstick for valuation. Even the most optimistic projections for growth are based on recovering from recession. Current economic policy is almost entirely based on consumer spending, and the faulty belief that increasing the consumer debt load will stimulate spending. It'll slow the bleeding for a time, but amounts to slapping a bandaid on a sucking bullet wound to the chest.
In 1999, HD was a bargain at $35. If you held the stock for a year and sold when the double top formed, you saw a 100% return on your investment. Even throwing caution to the wind and ignoring GAAP issues, the stock is still trading at 25 times earnings, which is not a value PE and is comparable to LOW at 26 times earnings. The average PE on the S&P 500 is a little higher, but the chart on the S&P 500 is identical to that of the Dow, and for the same reasons. Value is certainly in the eye of the beholder, but I think it's fair to ask what possible catalyst would cause investors to view the stock as a good value at say $45 when the stock was trading at $26 two weeks ago? We're heading into the slow time of year for construction spending and holiday sales depend on consumer spending. Plus the added exposure to carrying a large inventory of Christmas tree lights and plastic Rudolphs. Maybe it'll be a hot year for plastic Rudolph sales but I haven't seen a single indicator which would suggest that to be the case. IMO the downside risk outweighs any upside potential in this market and a bargain that stays a bargain, or keeps getting to be a better bargain, isn't a bargain, especially against a bear market yardstick. |
