Where's the Bear?

The market continued down until it bottomed on 7/15/2008 at 1,200.44. In my prior estimations, this could be the top of the range for the “bottom”. In other words, there’s a risk we may see a new low sometime over the next several months. However, I expect that the market is in a rally, and will continue for some time (how long or how high I do not know).

Specifically I want to comment on Fannie Mae and Freddie Mac. I’ve posted about this before so I won’t rehash, but suffice it to say I expect that the preferred securities are “money good”, and so I will recommend them here. In order to not skew my recommendations I will only recommend one, and I choose Fannie over Freddie. Why? Because Fannie is in a better capital position than Freddie and if things get really bad for one and not the other, Freddie will be the worse. The ticker on Yahoo for the liquid issue of preferreds from Fannie is FNM-PS, but it is known on some sites as FNMpS and others still as FNMPRS. Most of the other preferred issues from the agencies have essentially no liquidity and offer huge bid/ask spreads, so I would avoid them.

I expect that FNM-PS will be volatile, and it will not surprise me to see continued double digit percentage increases and drops on single days. It would also not phase me at this price if Fannie did not declare the dividend on their preferred – the only concern I have is nationalization wherein the preferred is wiped out, which I don’t expect, and have posted reasons why here prior.

Since the last update the recommended stocks [MMM (-0.66%), UNH (-0.49%), JNJ (+1.18%), PEP (+1.27%), BBY (+7.65%), BDK (-1.34%), PETS (-6.85%), JOSB (+13.11%), and WNR (+20.15%)] averaged a gain of 3.78%, outperforming the S&P 500 [+0.34%] by 3.44%.

I recommend at this time MMM, UNH, PETS, APA, OXY, SNY, DPS, AEO, ADSK, AIB, and FNM-PS.

Changes

So only a few days into year 2 and I am already making changes. Most notably I am dropping EWBC from my recommendations as it has reached 80% of what I believe it is worth and has risen too fast. Since June 27th when I first recommended EWBC here it has risen 104% - which given that this increase has occurred in a little over a month makes me comfortable with selling – for now.

I’m also going to again recommend WNR – an oil refiner. This was disastrous last year and probably will be again, however with oil having already fallen precipitously (however I do not believe oil will continue to fall forever) and gasoline remaining relatively stable the refiners should at least have a shot at earning a profit. WNR is risky in that they may decide to dilute shareholders by raising additional capital, which is how this investment may not work.

Also I’m adding JOSB – Jos A Banks which is an extremely well managed and cheap retailer of men’s dress clothes.

Since the last update the recommended stocks [EWBC (+23.62%), MMM (+2.12%), UNH (+8.44%), JNJ (+2.89%), PEP (+2.94%), BBY (+3.70%), BDK (+3.40%), PETS (+2.76%)] averaged a gain of 6.23%, outperforming the S&P 500 [+1.39%] by 4.84%.

I recommend at this time MMM, UNH, JNJ, PEP, BBY, BDK, PETS, JOSB, and WNR.