Even after yesterday's crazy rally, it has been a tough month for stocks. The volatility has been maddening and August will go down as the worst month we have had in some time.
Every time I am out walking the dog and run into a neighbor, the question of the day is: "How you are doing in this crazy market?" The truth of the matter is that, from my point of view, it has actually been kind of boring. We bought a little -- a very little -- on the massive down opening Monday, but other than that have not been very busy. Although stock prices have declined, I still have a hard time making a case that stocks are cheap.
Keep in mind that this craziness started from a very high level. The S&P 500 is still trading at a 19 PE ratio based on trailing earnings. I am sure it looks better than that based on forward earnings expectations, but I would sooner use a Magic 8-Ball than earnings estimates to make investment decisions. The Shiller PE is currently 23.7 and the market cap to GDP ratio stands at 1.12, so we cannot really say the recent weirdness has made the market cheap. It is not ridiculously expensive, so it is not time to panic like it's 1999, but it is not cheap enough to make me feel, as Warren Buffett said to Fortune reporter Carol Loomis back in the 1970s selloff, like "an oversexed man in a harem" by any stretch of the imagination.
The screens bear this out. My perfect stock screen has added just two names. Calamos Asset Management (CLMS) is back on the list as it has fallen to just 89% of book value again and may be getting close to a buy point. The convertible bond specialist investment firm also has a variety of growth and income funds and has been bleeding assets the past few years. In spite of that, the company is profitable and the stock has a very nice dividend yield of 5.94%, so it might be a good fit for a growth-and-income portfolio if it declines further.
The decline in Stage Stores (SSI) had as much to do with its earnings miss as it did with the silly market conditions. SSI fell short of Wall Street expectations and the stock has fallen by about 42% in just the last month. The stock trades at just 72% of book value and it is intriguing. I shop at one of its chains, as Bealls has the Santa Cruz Crocs (CROX) shoes that I like for semi-formal wear. The company blamed the earnings shortfall on economic softness in parts of Texas, Louisiana, Oklahoma and New Mexico as well as accelerated discounting in seasonal lines. (Stage Stores is part of TheStreet's Dividend Stock Advisor portfolio.)
I like the approach of operating specialty department stores in small towns and communities but am not convinced we have a widespread consumer recovery ahead any time soon. My outside walking around research tells me the average shopper is still being pretty careful with their checkbook, so I am slow to pull the trigger on retail names. The stock does pay a 5.9% dividend, and if it slides further that may become too attractive to ignore.
The stock that has attracted most of my attention the past few days has been Volt Information (VISI), the staffing company I have mentioned many times in the past. A disappointing earnings report along with the strong market conditions have pushed the stock back down below $9 a share. It has a new board, is disposing of noncore assets and operations and doing all the things it needs to do to restore profit levels to more in line with the rest of the staffing industry. When all is said and done with this company, I think its real asset value is closer to 12 than the current stated book value and Volt could, at a minimum, double over the next few years
It has been a crazy couple of week and the hardest thing to do in times like these is not let it make you crazy. Chasing every twist and turn of the market when it moves in this manner is impossible and is far more likely to end in ruin than profits. Keep in mind that the single most important job of a long-term investor is to survive for the long run. The market still is not cheap, so a healthy dose of caution still makes a lot of sense.