These Stocks Are Poised to Lead the Market Higher
By Dr. Steve Sjuggerud
November 19, 2008
The last 12 months have been just about as bad as it gets in stock market history.
Over the last year, stocks are down 42%. (That just beats the previous record of -41%, set in the 1973-74 bear market.) This kind of destruction usually takes place over a many years. But this time, the destruction was compressed into just one year.
Now, we're at an awesome moment. We have dirt-cheap stocks, investor pessimism all around, foolish selling, forced selling, plummeting energy prices, and a Fed that has cut rates to 1%, committing to do everything it can to ignite the economy.
This is the historic recipe for making a fortune in stocks. The question is, when the stock market finally recovers (and it will!), what could lead the way?
In the major rallies that followed the last few bear markets, the big winners were tech stocks...
- The stock market last bottomed in late 2002. By the beginning of 2004, tech stocks (as measured by the S&P Information Technology Index) had doubled.
- The previous market bottom came in late 1998. After that low point, it didn't even take a year for tech stocks to double. (Of course, that was back in the dot-com days.)
- In the bear market before that, which bottomed in late 1990, once again, tech stocks soared... up about 50% in just five months.
Conditions are ripe for tech right now...
Tech stocks have fallen 50% in the last 12 months and are down 75% from their 2000 highs. Investors are completely ignoring them... Banks, real estate, and commodity stocks get all the headlines. But you want to buy things when nobody's talking about them. And tech stocks are the cheapest they've been since 1995, on a price-to-sales basis. Take a look:
Tech Stocks Haven't Been This Cheap Since 1995 |
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There's just one problem: The time is not right yet.
Tech stocks are still in a downtrend (as measured by shares of XLK, a technology stock exchange-traded fund). If we've learned anything over the last 12 months, it's that we don't want to try to catch the ol' falling knife – we don't want to buy stocks in a downtrend.
We are near a historic buying opportunity in stocks. And based on the last few bull runs after down markets, major tech stocks should be on your buy list. They performed spectacularly coming out of the last three markets. They could easily do the same again.
When we start to see the uptrends, you need to be a buyer – of stocks in general and tech stocks in particular.
Good investing,
Steve
Editor's note: Steve Sjuggerud is a regular contributor to DailyWealth, a free investment newsletter focused on the world's best contrarian opportunities. We write with a simple belief in mind: You don't have to take big risks to make big money with your investments.
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AVOID THESE EXPENSIVE COMPANIES AT ALL COSTS
Shed a tear today for the rich... even they're taking a hit to the pocketbook.
Our chart today is a picture of this hit... It's the past year's trading in the Claymore/Robb Report Global Luxury ETF (ROB). This fund couldn't be farther from the "bull market in cheap" we've been writing about this year. ROB is loaded with companies that sell $200 ties, $100 sunglasses, and $2,000 handbags. In other words, "they ain't Wal-Mart."
When the economy started breaking lower in January, we heard several folks claim the super rich wouldn't stop spending in a global recession. The market has made hash out of those claims. From crooked Russian oligarchs to crooked Wall Street bankers, the rich are pulling in their horns... which is resulting in falling sales, falling profits, and a 57% haircut in the world's "expensive stuff" companies.
As copper's prediction comes true over the next few years, expect the world champions of cheap like ExxonMobil (cheap oil), Coca-Cola (cheap drinks), McDonald's (cheap food), and Wal-Mart (cheap everything) to survive and prosper... and expect ROB to keep heading lower.
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For years, state and local politicians have bought support from public sector unions by promising big benefits. Over time these promises exert severe pressure on their budgets.
A study three years ago by the Employee Benefit Research Institute estimated that the average public sector worker earns 46% more in total compensation than his counterpart in the private sector, largely because government employers spend 60% more per worker on benefits than counterparts in the private sector.
States have collectively racked up some $731 billion in unfunded liabilities for pensions and other retirement benefits, according to a study published last December by the Pew Charitable Trusts' Center on the States.
In particular, the states have been promising their employees rich nonpension benefits – such as retirement health and dental care – and paying for virtually none of it. According to Pew estimates, states have put aside a mere $11 billion to fund $381 billion in future nonpension benefits.
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– Steve Malanga
Wall Street Journal
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Shares of Ruth's Hospitality Group Inc. plunged Thursday after the owner of the Ruth's Chris Steakhouse chain reported a loss in its third quarter, slashed its guidance and said its sales continue to decline.
Same-store sales, or sales at restaurants open at least a year, fell 6.9 percent at company-owned Ruth's Chris Steak House locations.
The company said its sales dropped 15 percent in October as consumers continued to cut back on spending for meals out in favor of at-home meals or less expensive fast food.
Ruth's said it will "significantly reduce development going forward" in an attempt to protect its cash flow. The chain also said it is now primarily concerned with lowering its debt levels and minimizing risks related to its debt covenants.
Ruth's said given the economic environment, its previous 2008 profit guidance of between 55 cents and 60 cents per share is "no longer a realistic goal." |
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