Meanwhile at the bottom I listed companies which are reliant on the strong and improving US consumers - the so called sexy sectors, 1 homebuilder, 1 airliner, 1 retailer, and 1 bank. These are trading 3x the valuation (if they are profitable at all) the stocks we are fearing are going to tank from 50%+ growth rates to 30, 25, 20, heck 15%. 15% growth would be superior to just about anything the current 'sexy' stocks will be able to put up.
So again, I understand the rotation, I understand the thesis, I understand the liquidation. I can only hope one day valuations matter (and yes I realize commodity stocks are cyclical and someday they might have lower earnings than the previous year - but you can apply the same logic to housing stocks, retail stocks, airline stocks or banks)
I will be, as I stated earlier today, interested to see if M&A activity begins to really perk up if the "investor class" continues to value such merchandise at these prices - the "business class" obviously would have a different view on valuation.
But for us measly investors - the theme remains the same: valuation means nothing. Fundamentals mean nothing. "Invest" on hope and rotation thesis of a 'recovery' in '6 months', no matter what the data says because everyone else is front running a 'recovery'.
8 comments:
traderma
Do you pay much attention to the VIX. From the chart it looks like this market will not bottom until VIX hits 32 to 35. Any thoughts?
A bit of patience my friend.... I recall in 2005 steelmakers were trading at a P/E ratio of 4... the pet theory at the time was that Chinese economy was going to crash because... well, just because it was gonna... I bought in and then watched bugeyed as they dropped another 25% to a P/E ratio of 3... that wasnt fun, but...
between then and summer 2008 steelmakers went up 400%... the market is a voting machine in the short term, but it also a weighting machine in the longer term...
If you look at dry bulkers, some are having 2-3x 08 PER
Hi Mark,
I was reading the book " Finding the Next Starbucks" and this post kinda related to it. Great Job.
I am a newbie and I was wondering if you can help me with one thing in your analysis. I don't get where you get the 2009 Estimates and Forward PE ratio. Are you relying on analyst estimates from sources like S&P?
sliman
VIX I am not sure is as important as the old days with the advent of short ETFs but we'd want to see it north of 30 to feel more comfortable any sort of tradeable bottom is in
dumb cat,
the problem with dry bulk shippers is there revenue stream (for those who dont lock in long term contracts) is quite variable. if the rates drop 40% then their earnings can drop a lot. So their 2008/2009 earnings are much more guesswork.
Versus coal and fertilizer - in which prices are holding firm, but the stocks are being destroyed. So I have more confidence in the 09 numbers in those stocks... not that fundamentals matter.
Edward, yes for this chart I am using the analysts consensus estimates. I have my own estimates on many stocks, but just for simplicity I use the analysts for this chart.
It's not that fundamentals don't matter but that most investors don't believe these 2009 estimates. The market action is saying that there is no conviction in these numbers and they're going to come in way under.
FF,
That is why I've been saying the stock action signals either (a) massive liquidations or (b) the type of global recession people better be stocking up on canned foods.
China had a shortage of Potash in 2008 since they negotiated last, and hence will be over the barrel in 2009. I've seen no evidence of major drops in fertilizer (they could not keep going up at past pace) - same with coal. So "thus far" we've seen no real degradation in the underlying commodities but these have been treated no different than natural gas stocks (where the commodity is down 45%) or crude (where the commodity is down 30%)
Thats all that bothers me - there is no discerning. I purposely avoided the crude oil stuff due to a pullback and was light into natural gas due to potential for pullback. But we suffered the same punishment by owning "stuff" where the commodity did not pull back. It makes little sense other than "they are all the same thing" allocation trading.
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