On Friday’s Price Drop
Prices on stocks were reduced Friday, making them slightly more attractive. Sadly, many of the biggest price reductions were among the most expensive issues. For instance, Google’s stock price dropped by almost 8.5%. But, we’re still talking about a hundred billion dollar company. Google (GOOG) is trading at something like sixty times next year’s earnings.
Based on yesterday’s news, you might think all stocks had gone on sale. Sadly, that’s not the case. For instance, shares of Village Supermarket (VLGEA) will now cost you about 2.5% more than they would have on Thursday. However, some other companies I mentioned did go on sale:
Overstock.com (OSTK) fell 3.16%
Posco (PKX) fell 3.01%
Journal Register (JRC) fell 2.84%
Home Depot (HD) fell 2.69%
Energizer (ENR) fell 2.43%
American Eagle (AEOS) fell 2.29%
Gannett (GCI) fell 2.03%
It’s always tempting to take a new position at a time like this. But, remember, even among the hardest hit issues, Friday’s price decline was small compared to the margin of safety required for an intelligent investment. I’m only mentioning Overstock, Posco, Journal Register, Home Depot, Energizer, American Eagle, and Gannett, because they already looked promising. Gannett makes the list more because it’s a well known name than for any other reason. Despite the higher debt levels, Journal Register looks more attractive than Gannett, because of the type of properties it owns.
Some of these stocks are more attractive than others. Generally speaking, the stocks at the top of the list look like better bargains than the stocks at the bottom of the list. Perhaps, that’s an indication of investor sentiment. Already out of favor stocks get knocked down even more. Personally, I think it’s just a coincidence. For instance, I thought Jakks Pacific (JAKK), Blyth (BTH), and Timberland (TBL) already looked cheap. On Friday, Jakks and Timberland were up a bit; Blyth was basically unchanged. I suppose asking for a further drop in stocks that are already that cheap is asking for too much.
By the way, Overstock.com is now at a fifty – two week low; Journal Register is at a five year low.
On a personal note, I have to admit Friday’s trading has reinvigorated me. Bargains don’t grow in the sun, and judging by yesterday’s media coverage, there’s a renewed chance of clouds. Still, Friday’s trading didn’t make stocks materially cheaper. A drop of two or three percent is little more than a rounding error.
At least we won’t have to hear about Dow 11,000 on Monday.
Happy Hunting
Comments
More evidence that "value investors" are broad market timers, not only for the market overall but for individual stocks. Of course, most "value investors" would vehemently deny "timing the market."
Currently I'm long PKX and GCI, and had been short GOOG for enough of the ride down last week to be happy about it.
I would watch this week's action, if the broader market can't hold support within 1% or so of Friday's close, we could be going down for a while. Keep your powder dry, and if you short, be looking for good candidates ...
Posted by: nodoodahs | January 22, 2006 07:05 PM
I'll second that, but I won't apply it to ALL value investors. That said, "market timing" involves MUCH more than simply trying to time price patterns or whatever. Sector allocation is also market timing, and there are many "value funds" who do this.
At any rate, "Market timing" is alot more complicated than many people make it.
Posted by: MarketWizWannabe | January 23, 2006 03:39 PM
While I agree that Friday's pull back offered a nice entry point for investors, and like most of your picks, I am bearish on Overstock. I don't see the long term prospects for the stock as being very good. They are an inferior company struggling to gain market share from one of the world's most recognizable brands. If the service they offered was superior to that of Ebay's my views may differ, but this is not the case. Also, their CEO's publicized concerns with stock manipulation raises a red flag in my opinion. If his time is best spent whining about manipulation, then he is not a very productive CEO. If he knew the company was executing well, he would let his business speak for itself. I don't believe this is a company that will ever achieve sustained profitability, just my two cents. Great work on the blog though, I am a frequent reader, and appreciate the insight you offer. I have a link to you on my investment blog. Check it out and feel free to comment... TheNewWallStreet.com
Posted by: The New Wall Street CEO | January 24, 2006 11:09 AM
Just wanted to mention I have been to TheNewWallStreet.com and like it a lot. It's certainly different from this blog, but I think both could be worth your time.
Readers of this blog should give it a try at the very least:
http://www.thenewwallstreet.com
Posted by: Geoff Gannon | January 24, 2006 11:26 AM