• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Consumer Discretionary

Don't Get Distracted by a U.S. Jobs Bill

Forget trying to time external market events and focus instead on pricing individual companies.
By SHAM GAD Sep 08, 2011 | 03:30 PM EDT
Stocks quotes in this article: PKX, OSK, SOA, ARW

I'm not one to make predictions, but I'll give it a go: The stock market may end the week on a good note; in fact, it could end the year on a solid note.

How does this potential outcome affect my investment activities going forward?

It doesn't.

Despite a jobs report this morning that confirmed the dismal state of U.S. employment prospects, the market was up earlier today thanks to what U.S. Treasury Secretary Tim Geithner called a "substantial" jobs package that's expected to be unveiled by President Obama tonight. On top of that, the market is supported by the assumption (or expectation) that the Federal Reserve will institute a third round of monetary stimulus to bolster the economy.

The reality is that market investors are trying to time their decisions based on a couple of events with no knowledge of how beneficial or effective those events will be.

No doubt, a clear and effective plan to add jobs is a good thing, and something the economy desperately needs right now. But I scratch my head when I see investors buying equities this week -- many of them are the same investors who were selling three weeks ago at much lower prices.

For instance, South Korean steel giant POSCO (PKX), one of the best-managed and profitable steel companies in the world, was trading in the mid $80s, or 7x earnings, at the peak of the market turmoil last month yet no one seemed to care. Now folks are buying it at $99, which is still an attractive valuation at 8x earnings.

Investors are likely to maximize results if they forego trying to time market events and instead focus on pricing businesses, as the operations of a business are not as volatile as the stock market. Oshkosh Corp. (OSK) is a quality business with an excellent array of diverse operations, but uncertainty surrounding defense spending has hurt the stock price. Long-term operations, however, are resilient. Pricewise, shares trade for $18.27, less than 5x trailing earnings and 10x forward earnings. The company sports an enterprise value of $2.4 billion. Over the past four years, free cash flow has been as low as $300 million and as high as $852 million.

Solutia (SOA) is a specialty chemicals manufacturer with leading market shares in all three segments of its business. Specialty chemicals are far from glamorous but they are often essential ingredients in many day-to-day products. Priced at $16 a share, the company trades for 8.8x earnings with expectations of strong growth ahead. In fact, estimates are for earning per share of $2.45 in 2012, up from $2.12 in 2011.

Arrow Electronics (ARW) is a global distributor of electronic components to industrial and commercial customers. Macro concerns have led shares to fall by more than 30% since May. Now the shares trade for $30, valuing the company at less than 6x forward earnings, despite estimates that earnings will grow by 25% in 2011 over 2010.

The above examples merely illustrate the possible opportunities that exist for investors who let price guide their investment decisions rather than relying on what type of stimulus or other temporary measures will boost stock prices.

Sure, cheap stocks can get cheaper, but when you buy well below intrinsic value, odds are that good things will happen.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Gad had no positions in any of the stocks mentioned.

TAGS: Investing | U.S. Equity | Consumer Discretionary

More from Consumer Discretionary

The Sagas of a Cruise Operator and a Burger Joint Continue

Jonathan Heller
Feb 24, 2021 10:00 AM EST

Carnival Corp. continues to sell debt and equity as it works to stay afloat, while Steak n Shake deals with problems of its own.

A Furniture Seller and Footwear Retailer With Room to Run

Bret Jensen
Feb 24, 2021 8:46 AM EST

Hooker Furniture and Foot Locker recently raised their dividends and could provide more upside to buyers of the shares in the months ahead.

DoorDash's Charts Tell Me to Stay Near the Exit Door

Bruce Kamich
Feb 22, 2021 8:55 AM EST

Buyers of DASH are not being aggressive.

Ruth's Hospitality Group Serves Up Medium-Rare Charts

Bruce Kamich
Feb 19, 2021 8:28 AM EST

The pace of the advance in the steakhouse operator's shares has been slowing and volume is shrinking, too, so be cautious.

Norwegian Cruise Lines? Get Off at the Nearest Port

Bruce Kamich
Feb 17, 2021 1:00 PM EST

The charts suggest that people will continue to be disappointed.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 12:31 PM EST PETER WILLSON

    Has the Short-Term Top Come for the XLF/Banks?

    The has triggered a long-term overbought signal ...
  • 10:10 AM EST GARY BERMAN

    DLTR: The Buck Might Not Stop Here, but I Am Looking for a Bounce

    Dollar Tree is trading inside our long-term boun...
  • 08:36 AM EST GARY BERMAN

    Wednesday Morning Fibocall for 2/24/2021

    SPX (Long-Term View) The 2/16 HIGH @ 3950.43 is ...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2021 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login