If you wait for an official signal that the economy is on firm footing, you will miss out on cheap stocks.
Right now, there are fragile and strong parts to the economy. The unemployment rate and housing numbers are weak. But there is also a growth economy that exists. Look at Deere (DE) and you come away with a very solid economic picture. In its fiscal fourth quarter, Deere's revenues grew by 20%. Domestic sales grew by 14%.
A strong shopping season is hardly a sign of a looming recession. For the 91%, or depending on how you interpret the data the 80%, of Americans who are employed, they aren't being bashful with their wallets. According to my wife, who reports to me about retail activity, places like Nordstrom (JWN) and Saks Fifth Avenue (SKS) had no discounts to speak of on Black Friday, yet still were packed with shoppers, which she defines as people purchasing.
If you wait for public announcements that the US economy is looking good, you will not be able to buy Hewlett-Packard (HPQ) at $26 a share. A normalized market environment will not value one of the largest tech companies in the world for 8x earnings. Nor will shares in Brookfield Infrastructure Partners (BIP), a business that owns mini-monopolies in the form of infrastructure assets all over the world, trade for $25 and offer a yield of 5.5%. At that price, you are getting Brookfields assets, which include things like power transmission mines, utilities, gas pipe lines, and timberlands, for a slight premium to book. Many of these assets have contractual cash flow streams for decades into the future.
RailAmerica (RA) is a small-cap operator of regional railroad lines. RA operates 40 individual railroads on over 7,400 miles of track. Shares currently trade for $13, valuing the business at less than $700 million. As a smaller rail operator, operational risk is higher for RA. A slight decline in freight volume can have a greater impact on the bottom line. But operations are strong despite a 3% drop in freight volume in the first nine months of 2011. EPS is expected to be up 20% in 2011 vs. 2010. Shares trade for 18x earnings and at par with book value. Major rail lines like Norfolk Southern (NSC) and Union Pacific (UNP) trade over 2x book. More so, Fortress Investment Group owns more than 50% of RA and offers a backdoor catalyst for value creation.