How's the Water?

Well I’ve been on a roll. I guess that means it’s time for a miss. I’m going to predict that the market heads lower until we bottom in September/October/November (sound familiar?).

“This sure feels like a recession” – even though the numbers haven’t borne witness to it. Economists in one recent poll (http://online.wsj.com/article/SB121660918668269545.html) seemed to see positive GDP growth in the second half of 2008 – with only 10% forecasting a contraction (recession). Stock prices have gotten interesting and eventually it pays to bite the bullet and buy in spite of bad news and a gloomy outlook. It’s time to dip your toes in the water, but not yet dive in. Generally when a recession is confirmed (headlines etc) then it is time to buy. This will likely not happen until October/November at the soonest.

In case it’s gone unnoticed, I prefer to buy what no one else likes – the stocks that are cheap and don’t have to produce huge growth and beat estimates in order to be a profitable investment. Chasing ever higher estimates is difficult – not going out of business is easy. While tech stocks have not gotten to the “no brainer” price yet, they’re heading that way fast.

This market is perfect for loading up on your favorites. To beat a dead horse again, think of this as a sale – 20% off – but there’s a lot of rubbish in this rummage sale. If you buy great businesses then you can get a terrific bargain; if you purchase something that wears out or has problems with its design – then the bargain you thought you were getting wasn’t one at all.

I am a believer that quality is the way to go when it comes to buying companies – and this is a good time to reiterate this – if the business isn’t the highest quality then this is probably not the right time, or price, to buy.

My prior recommendations [EWBC (+47.57%), MMM (-1.12%), UNH (-8.38%), JNJ (+5.57%), UYG (-1.21%), XHB (-1.97%), DNA (+29.10%)] averaged a gain of 9.94%, which outperformed the S&P 500 (-1.44%) by a whopping 11.38%. I recommend at this time EWBC, MMM, UNH, JNJ, PEP, BBY, BDK, PETS.

Overall record since I began posting recommendations on this blog on 7/31/07 has been +8.92%, compared to the S&P 500's -13.44%. My goal continues to be outperforming the market by 1.5% per quarter, so don’t expect that the next year will look as good.


Some other businesses that you might consider putting on your shopping list:

PG – Proctor & Gamble
CSCO – Cisco
KO – Coca Cola
AMGN – Amgen
LLY – Eli Lilly
BAC – Bank of America
JPM – JP Morgan
TGT – Target
FDX – FedEx
ODP – Office Depot
SPLS – Staples
SBUX – Starbucks
ADSK – Autodesk
CVH – Coventry
FIS – Fidelity Information Systems
JOSB – Jos A. Bank
LOJN – LoJack
RMCF – Rocky Mountain Chocolate Factory