"These are the times that try men's souls" -- and investors' souls, too. You've gotten hit this week, and if you've had a good weekend, it's only if you've got no money in the market -- which is highly unlikely if you're a subscriber here.
There's nothing but doom and gloom out there, with the S&P downgrade serving as a cherry on top of the destruction sundae that's been served up this week. I am right there with you: I have my retirement and kid's education money and personal trading capital in stocks. I haven't looked at the account in a few days, and haven't slept much, either, if that gives you any consolation.
But here's some good news, if there's any to be seen: We've been through this before, and recently. I'm not just talking about the European-inspired disaster in March of this year. I'm even going back to the terrible spring of 2009 -- and this isn't 2009. Of that I am sure, because this time we haven't gotten all the pension and speculative money that, in 2008 and 2009, fueled the overleveraged hedge fundies and day traders to come back into the markets. We know that more money is now on the equity sidelines than ever. Companies have been using cash to deleverage, and hedge funds have been closing down, not starting up.
From a trader's viewpoint, that makes all the difference in the world.
Now, I know the last thing you've been reading this weekend is a trader's viewpoint. No doubt, you've already been inundated with economist doublespeak about growth and debts and rates and figures. But here's how a trader looks at this: There's less money that is going to be forced out and panicked to leave this market -- a lot less. I believe the money that needed to panic, or most of that money, did its dirty exit last week.
That doesn't mean this retching of equities is over, but I'm betting the lion's share of it -- I'd say more than 70% of it -- is, in fact, done. Moreover, unless the U.S. and European economies absolutely come to screeching halt, stocks are just plain cheap. With many names at perhaps 12x or 12.5x times earnings, there's a lot to pick from, if you've got the cash, the courage and the time to wait.
Here's one of many you might look at: Total (TOT). The French multinational oil company has gotten just crushed here, and is now more than 23% o its highs. But at $48 a share, you're now getting a pretty safe dividend of more than a 6.3%. Want to supercharge that return a bit? Along with your new cheap stock purchase, how about selling January 2012 $50 calls at $3.30, where they closed Friday? Besides your annualized 6% divy, you'll collect another annualized 13.75% on your premium and collect $2 a share, to boot, if the stock gets called at the beginning of next year.
How's that for getting paid to wait? There's certainly still downside risk, but Total doesn't have the balance-sheet risk of leveraged natural gas company or the liability risk of a name such as BP (BP). You've got to ask yourself, where are the shares going to go? $45? $42? I don't think that can happen.
Right now, values like this abound in the market. It takes courage, and maybe the viewpoint of a trader to see it, but there are some trades to make. Also, you know when the best time to look for value is, don't you? Of course you do: When there's nothing but bad news -- like right now.
Have a cold-blooded look at very-high-quality stocks, and see if you don't agree.