Buying Low?

October 9, 2008 2:31 PM

Stock market investment filter: Buying opportunities?

Let's say Obama is elected in November and the U.S. economy gets a shot of optimism. Let's assume an investor is lucky enough to time when the market bottoms or turns around. What sectors or companies would most reliably recover or be quickest to recover from the current meltdown, and why? What indicators would you look for in a prospective investment with the Democrats in power?

posted by weapons-grade pandemonium to work & money (21 comments total)

I can tell you what some big hedge fund managers are looking at, with this in mind. Clean tech - energy-efficiency, solar power, &c. Land with lots of sun pouring onto it, adjacent to big power-hungry urban areas like LA and San Diego. In the IT industry, recession-proof technologies like virtualization and security.

Buffett, of course, just plowed $5bn into Goldman on excellent terms. So the i-banks themselves are attractively priced.
posted by rdc at 2:49 PM on October 9, 2008

Banks.
posted by smitt at 2:51 PM on October 9, 2008

Basket of banks / financials...
posted by laukf at 2:59 PM on October 9, 2008

An Obama Presidency and a Democratic Congress would steer more funding toward Alternative Energy and Infrastructure.
posted by Fuzzy Monster at 3:27 PM on October 9, 2008

Sorry, you've missed the boat on alt energy. Those have taken a little bit of a hit lately (hasn't everything?) but they're way, way overpriced.

In the current environment I honestly wouldn't encourage any given symbol, because who knows what tomorrow will bring. But let's hypothetically say that we know there will be a big recovery as soon as Obama gets sworn in.

The first thing I'd buy is QQQQ. We're in the phase of Panic Selling (tm) now, so going long on the Nasdaq would net you a nice gain. (To give you an idea, QQQQ has dropped 11% in a year, and most of that coming within the past three weeks -- that's a "holy shit" moment, btw)

Or, if you're feeling really daring, buy into QLD. It's a double-long fund, so if you were to sink $10 into QLD, it'd be like you were buying $20 worth of QQQQ. (I know, that's not really accurate, but it's good enough for government work) Do you think the Nasdaq will gain 10% in a week? QLD will gain 20% in a week.

Sectors: I would not touch banking with a ten foot pole, no matter how much you told me it was going to recover. Sorry.

I would go long on hi-tech. An Obama presidency will encourage American hi-tech innovation, not just alt energy.

I would go long on automotive. (WTF, you say, well, there's going to be an Apollo project for better fuel efficiency. Now's the time for oversold automotive.)

I would go long on basic staples; agri, fast food, cigarettes. No matter what anyone says, the economic pressures are not going away overnight. People still need to eat, and the more economic pressure they're under, the more they'll go towards lower-priced commodity staples.

Everything else I'd stay away from. Real Estate funds if you're really daring, but who knows what the bailout will do... probably the reverse of what it's intended to do.
posted by mark242 at 3:54 PM on October 9, 2008 [2 favorites]

Sorry, you've missed the boat on alt energy. Those have taken a little bit of a hit lately (hasn't everything?) but they're way, way overpriced.

Agree. Although this might be the next big bubble, in the same way home prices and tech stocks were in the last two. People might be saying they are overpriced for years while they outperform the market before the crash happens.

I would go long on basic staples; agri, fast food, cigarettes.

That's probably played out too. The trick is to get into those before the crash, not during it, because there's not much upside. It's probably a pretty safe, but not something that will have a big payoff in very many scenarios.

I would not touch banking with a ten foot pole, no matter how much you told me it was going to recover. Sorry.

I agree that it's risky, but a smart play in that sector would probably the best if it can be done right. There is going to be a lot of consolidation coming out of this mess, and if you can pick the bank that ends up with all of the marbles you can probably make a huge gain. Good luck with that though.

Me, I'm just going to Vanguard index funds and hope the whole market recovers before the world turns into Thunderdome.
posted by burnmp3s at 4:06 PM on October 9, 2008

I just put 10% of my portfolio in gold bullion coins. $992 an ounce today, but many expect it to go to $2,000 by the end of the '09. There's a good run on gold, too. It's not easy to get the American Eagle coins right now. The U.S. mint has temporarily halted production all but the one ounce bullion coins due to demand. Like the market, there's never a good way to "time" gold - but things look good. Just a thought.
posted by Gerard Sorme at 4:32 PM on October 9, 2008

Banking seems especially risky now, because the Treasury announced it is considering that taking equity positions in banks. This would highly dilute or wipe out other share holders in those banks. Check out Fannie, Freddie, and AIG for recent examples.
posted by procrastination at 4:55 PM on October 9, 2008

Before taking stock advice from internet strangers, you should realize that the stock market is probably the most efficient market in the world, meaning that, at any given moment, the price of any stock/bond/derivative/whatever represents the consensus opinion of millions of very smart and informed people about what the correct value of a that security is.

Basically, there's no good reason to believe that any given stock is underpriced, unless you have insider information, which is illegal to trade on. Who would have predicted that we'd now be at Dow 8500 a year ago? You really don't know if we'll be at Dow 7000 or Dow 12000 a year from now. Of course, there's pretty solid evidence that, over the very long term, stocks give you the best return of any investment. But all bets are off in the short term.
posted by mpls2 at 5:15 PM on October 9, 2008 [3 favorites]

Videogame publishers. Today's cheapest, high-value entertainment is in videogames. It's going to be a bad Christmas for most retailers, but a great Christmas for offerings that give you a large bang for your entertainment buck. In the Great Depression, the film industry took off, in part because people were looking for cheap entertainment.
posted by Cool Papa Bell at 5:20 PM on October 9, 2008

The stuff that rallies the hardest in the immediate recovery is the stuff that was hardest hit in the downturn. If that's how you want to play it, buy high-beta global cyclicals (miners, power generation, energy) and/or levered financial institutions (Goldman Sachs, Morgan Stanley) and/or the hardest-hit regional banks (Key, National City).

Longer-term, I don't know. I can tell you that if you polled investors in late 2001, no more than 1 of 100 would have told you that railroads would be the best-performing industry in the S&P over the next six years. So look where no one else is looking.
posted by Kwantsar at 5:26 PM on October 9, 2008

You may want to watch "Mad Money" with Jim Cramer for ideas. On MSNBC nightly (during the week) and he has some interesting takes and he gives you education that goes with it. He also says to plan an hour a week on homework for each stock you own.
posted by 6:1 at 6:35 PM on October 9, 2008

Software.

Full disclosure: about half of what I don't have in cash is in, yes, videogame producers. ERTS is still overvalued, but there are a few other deals out there.
posted by ikkyu2 at 8:00 PM on October 9, 2008

i think we've still got a long way to go before we bottom out. but i'm a pessimist this evening.
posted by rmd1023 at 8:31 PM on October 9, 2008

Well, many many people consider Jim Cramer about the worst investment advice available. You'd have some work figuring out if the financials were good buys even if you knew that they'd need preferred stock bailouts. I'm not sure how much you're talking about investing, but you could invest very slowly over the next 6-12 months hitting safer things first.

So what video game publishers are publicly traded and worth considering? I suppose they are interesting among software companies also because they are basically immune to labor issues. I'm not sure why anyone imagines business software companies will preform when the economy is tanking and their labor expects massive salaries.
posted by jeffburdges at 10:04 PM on October 9, 2008

Are there any publicly traded Democratic leaning lobbying firms? Assuming Democrats in White House and Congress, lobbying by firms with access will be one of the first things to ramp up quickly, no? (Too cynical?)
posted by birdsquared at 10:23 PM on October 9, 2008 [1 favorite]

I'm a value investor, and I tend to hold stocks over long periods (10+ years). I think we are entering a wonderful and rare time to invest, when many solid, well-managed companies' stocks are just as beaten down as those for apparently craptastic, poorly-run and nearly bankrupt ones.

One of the most interesting investments is Bank of America. I think it has an excellent chance of pulling through the banking mess, it is trading at 70% of its book value, and it has a P/E of 10. These are surface indicators that suggest it's worth digging into its financials and financial history.

Berkshire Hathaway also looks interesting. Very well run, very profitable, and sitting on a ton of cash. In my opinion, the investments Berkshire has made in the past week will serve it very well for the next two decades.
posted by zippy at 12:18 AM on October 10, 2008

So what video game publishers are publicly traded and worth considering?

Take a look at ATVI (Activision-Blizzard). Disclosure: I am long this stock.
posted by Fuzzy Monster at 7:34 AM on October 10, 2008

The stuff that rallies the hardest in the immediate recovery is the stuff that was hardest hit in the downturn. If that's how you want to play it, buy high-beta global cyclicals (miners, power generation, energy) and/or levered financial institutions (Goldman Sachs, Morgan Stanley) and/or the hardest-hit regional banks (Key, National City).

I went three-for-three, as the S&P did 11.5% and:
high-beta global cyclicals (miners, power generation, energy)
Miners: BHP ADR +16%, Rio Tinto ADR +19%, Vale ADR +28%
Power gen: Vestas +17%, ABB +18%
Energy: S&P 500 Energy sector +18%, double that for high-beta gas stocks Southwestern, Petrohawk

Levered financial institutions:
Goldman +25%
MS +87%

Regional banks:
National City +15%
Key +14%
posted by Kwantsar at 4:01 PM on October 13, 2008

And ERTS is most certainly not expensive if you believe the consensus 2010 number, and strip the cash.

In terms of playing video game stocks, the big six are Nintendo, Activision, EA, Square Enix, Ubisoft, and Konami.

I'm not sure why anyone imagines business software companies will preform when the economy is tanking and their labor expects massive salaries.

I don't expect them to, but the argument is fourfold:
1. Employees will not have much bargaining power in a downturn.
2. Salaries and benefits are largely a variable cost, and can be removed quickly.
3. Regardless of the economy, firms will always look to reduce costs-- something business software arguably does.
4. Some/many application software providers collect an annual licensing or maintenance fee, making their revenues less cyclical.
posted by Kwantsar at 4:12 PM on October 13, 2008

Thanks, all.
posted by weapons-grade pandemonium at 8:39 AM on November 2, 2008