Entry Points Galore

 | Jul 23, 2012 | 11:51 AM EDT
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On down days, no one wants to hear that perhaps there's an opportunity in PetSmart (PETM), particularly after it blew away numbers and, yes, is down only 3 points.

To wade into Ross Stores (ROST), down 5 points, seems like taking your life into your hands. Can you really take a shot at Colgate (CL), let alone invest in it, if the stock's only down 4 points from its $106 high? Is it too early to buy Johnson & Johnson (JNJ) with a restructuring ahead or Coca-Cola (KO) after that magnificent quarter, even though they are only down 75 cents and 50 cents respectively?

The answer is, yes, of course, avoid all of these stocks if you let your screen and the action in Spain take over your brain, renting space and telling you "avoid all stocks because the world is ending." A screen drenched in red is a recipe for paralysis, indecision and, ultimately, panic.

But if you look at what has happened since this crisis in Europe began, if you look at what has worked over and over again, it's to wade into the recession-resistant names and the higher-yielding stocks to take advantage of the decline. In fact, it is moments like these when you get a chance to buy merchandise that refuses to go on sale because it shouldn't go on sale.

Stock people so rarely think about what's happening away from stocks. But without that perspective you are going to go astray. We have the 10-year Treasury yielding very little. We have the 30-year Treasury paying you just 2.5%. That's a long-term asset not unlike the long-term nature of equities, giving you so little return that you simply must be drawn to the higher yielders if only as a place to park money. The fact that the companies with the higher yields might be doing well is an added bonus.

Let's go back to Johnson & Johnson. The quarter's been reported. It wasn't terrific and the company guided down, in part because of currency. But there's a new CEO, Alex Gorsky, and he is motivated to get something done, including the possible streamlining of this great American company that had been so terribly mismanaged. Meanwhile, JNJ is paying you 3.5% to stick around until he fixes things. That's a full percentage point better than the 30-year and that's before favorable tax consequences. Sure it is ugly, but how ugly? How about ugly enough to give you a discount?

Or how about these home builders? They don't build homes in Spain. They don't have Italian mortgage exposure. They are currently participating in what Union Pacific is calling a nascent boom in housing. Sure their stocks are headed down. They are in the S&P for heaven's sake. But that doesn't mean they stay down. It means you have an ENTRY point.

In fact, I see entry points galore. Been wondering when to get into Verizon (VZ)? Last week the company reported a fine quarter, with its TV business being a little light, but its wireless business being very strong. The company has tons of spectrum. It's been able to slow capital spending. It doesn't have any European exposure. And it yields 4.5%.

Of course, I would rather wait until 5%. But I would rather wait until 5% for everything. It just hasn't worked as a strategy. It's unrealistic.

How about other companies that just reported? If you are like me you have to be stunned by how good Google (GOOG) and Microsoft (MSFT) were. In challenging times they are pulling ahead and solidifying positioning, Google with its terrific share take in customer acquisition and Microsoft with a dynamite product cycle. Oh, and last week's standout, Qualcomm (QCOM), because of a big new product cycle? It, too, is being hammered. Heck, we just heard from the company less than a week ago. How can it have changed so radically? The stock price has changed, but not the companies' fortunes.

But again, because of Europe they get hammered.

Or how about these oil service companies? Baker Hughes (BHI) and Halliburton (HAL) have been horrendous as natural gas prices have plummeted, even as the rest of the world continues drilling, particularly in the Mideast.

Now the rigs have been moved in this country to all of our oily shales. At the same time Mexico's come on strong. You have a terrific opportunity to buy stocks that clearly want to go higher but are constrained by this stock market. That won't be the case in a couple of days.

Meanwhile, we see what happens when oil and gas companies get too cheap. You get a Nexen (NXY), a takeover at a nice premium from China. Sure, it's Canadian. But so what? There's tons of Canadian oil and gas companies. And we know that U.S. companies, if they can't be bought by Chinese companies because of political concerns, can do joint ventures that dramatically raise the values of their stocks.

Or how about these domestic banks? US Bancorp (USB) and Wells Fargo (WFC) reported incredible quarters with real growth and no exposure to Europe whatsoever. You simply have to hope that this stock market, as well as the ETFs that include banks, take these down. You will not be able to get them at a discount otherwise.

Or, dare I say, how about the industrials? On Thursday I had Honeywell CEO Dave Cote on. The company reported a remarkable quarter. It has oodles of cash. It recognizes that Europe's going to have no growth for five years. Yet he is upbeat and the company's doing terrifically. I didn't think this stock could come back down to where you could jump on it.

But now you are getting real lucky. You can get it for a decent price, better than you can expect.

I am not saying you have to go down and dirty and pick up some disappointers like Johnson Controls (JCI) and Cummins (CMI). I am not saying that it's time to buy Caterpillar (CAT), although the action in Eaton (ETN) today, a clear disappointment that rallied, suggests that it's not such a bad bet.

But the fact is a portfolio of Johnson & Johnson and Kinder Morgan (KMI), a 5.81% yielding master limited partnership, as well as a food company with a food company with a decent yield, like a Heinz (HNZ), and a utility like a Verizon. plus a domestic retailer like a PetSmart or a Ross Stores works just fine here, particularly because you are getting entry points caused by external factors that shouldn't impact these stocks, but do so because they are part of a basket of stocks that gets traded on the whims or hedge funds everywhere who love to buy high and sell low.

Yes, it's hard to buy. Yes, you have to worry that Europe will be horrible again tomorrow, although every time Germany's market gets hit, the iron chancellor, Austerity Merkel, rises to the occasion and buys time allowing the stocks you are buying to recover their losses.

But there are so many companies with high yields, no exposure to Europe or little economic sensitivity, that to run from these rather than to these when we get a European related selloff is simply to giving in to emotions.

Buy high, sell low. Has it ever worked? Not in my 31 years on Wall Street. I guess this time it could be different. You never know. I think the weight of the evidence just doesn't favor money being made with that particularly investment style.

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