If you are trying to keep up with all the global macro stuff in the world today and attempting to decipher how it will impact the markets, it might be a good idea to lay a plastic tarp around your desk.
When your head explodes, no one will have to spend hours cleaning up the mess. It is the considerate thing to do in this environment. The numbers and reports are never ending from Greece, the Ukraine, the Middle East, the Federal Reserve, oil prices, jobs, retail sales, GDP, China and European QE. All are potentially market moving.
I am a news junkie and try to stay up on things. But I make it a point not to try to apply it to the psychological morass that is the stock market in the short-to- intermediate term.
Focusing on individual companies and the value of the business compared to the stock price and large doses of patience are far more successful than trying to figure out how the moves in the dollar will move stock prices long term.
One of my favorite ways to find stocks that are selling at a discount to their underlying Value is to review each week's issue of Value Line mostly cover to cover. The new issue is up every Thursday and I try to flip through it sometime that morning.
The first place I look is the list of stocks trading at the greatest discount to book value. If I had not seen a newspaper in months, I could tell you that oil prices were down quite a bit. That's because oil and oil services companies dominate the list. Many of them are going to have to write down their assets sometime in the next year. Reserve value is almost certain to fall so the discounts are not as extreme as they first appear. But there a lot of high quality energy companies on sale right now.
Ten of the 20 cheapest stocks are energy related. I have no idea what oil prices will do, or when they will do it. But I am pretty sure that some of my favorite oil stocks like Rowan (RDC), Tidewater (TDW) and Gulfmark Offshore (GLF) are worth a lot more than they sell for right now. It may be an ugly period and a bumpy ride, but I expect it to be a profitable one over the next five years or so
LeapFrog (LF) makes the list of stocks trading at a large discount-to-book value. The educational toy company had a dismal holiday season for the second year in a row and the shares have been pummeled. I have to say I am delighted to see it as I have used the price weakness to buy more and get my cost basis in the stock lower.
This company makes fantastic products but they are not that good at running a business. This company needs to be bought out by a larger toy company or private equity shop. They have a strong brand but management has failed to execute for a long time now.
Arcelor Mittal makes the top five of cheap stocks based on book value. This stock has been in my portfolio for a couple of years now without really doing much. Consistent with my "hold it until it works" timeframe, the shares will be in my portfolio until we see a global recovery in the economy that leads to higher steel demand.
I have no idea when that will happen. But I do know that when it does, the stock will rise by many multiples of the current stock price. If it takes a decade for the company to trade back to the $50 it fetched in 2010, that works out to about 17% a year. If we get back to the pre-crisis level of $100 in that timeframe, it is roughly 25% a year compounded. I can wait.
I stay on top of the news. One of my wife's favorite companies is the pile of newspapers I leave lying around the house. In addition to the internet and TV, I read two or three actual newspapers a day.
I can sit around and talk about what is going on in the world for hours and anyone who knows me knows that I have strong opinions. I am not the least bit shy about expressing them, but they do not enter into my stock-selection process at all.
For me price relative to the value of the company and the strength of the balance sheet are the only things that matters.