Open Up Your Wallets!

27 Jul

Perhaps to a fault, I enjoy seeing a screen full of red. That is, declining stock prices. And that is exactly what has been happening the past few days. The market is providing the opportunity to average down or initiate new positions in some good companies at attractive prices. I am usually early in buying as a stock goes down, but one cannot often buy right at the bottom. Rather, I buy when the price represents a significant discount from my conservative estimate of instrinsic value. And if the stock price continues to fall, I welcome the opportunity to average down the purchase price. As an investor focused on obtaining value, I believe these are some of the most exciting times to be investing – when fear is overtaking greed in the collective sentiment of stock market participants. Now is the time to be aggressive in taking new positions.

While the overall market is still not cheap, the recent pullback has provided some excellent opportunities to invest cash. Several excellent companies related to housing and consumers are now trading at very attractive valuations relative to their normalized earnings. Companies I’ve mentioned previously, such as American Eagle Outfitters (AEO) and Countrywide Financial (CFC), are now trading at new 52-week lows. Best Buy (BBY) is back near its lows for the year. As for S&P 500 sectors, financials in general have really taken a hit, down 6.4% (so far) this month alone. And looking at a list of stocks that are down significantly year-to-date exposes a myriad of regional banks down 20-30% on average. I think there could be several opportunities in this space.

Full disclosure: Long positions in all companies mentioned.

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