Get the Facts, Not the Hype, Then Trade

Nobody can dispute that prices started surging in 2021. The consumer price index continued that disturbing upward trend in 2022 as well reaching its highest rate in decades. The inflationary spike began as stimulus payments starting hitting people's accounts during 2020. It has progressed from there. Chart Source: Value Line Another indisputable fact is that the rise in prices came well before the start of the war in Ukraine. When politicians tell us that the increased cost of living is due to Putin they are lying. Prices were steeply inclining for a while before the invasion. It is true that exacerbating the price chaos were the Russian sanctions, which Western nations imposed. That subjected us to even higher oil prices, plus fertilizer and food supply chain disruptions after the war began. What did the West do in 2014 after Russia annexed Crimea? Not much of anything. There were no sanctions and little said by the rest of the world. Life went on as usual, because the conflict was left to the local populations, which were directly involved. Instead of following that script, we're now paying in the form of product shortages, enormous price hikes and a risk of entering into a third World War. In my opinion, the 2014 reaction was the much more rational way to go. Is there anyone out there who thinks what's transpiring now -- death and destruction in Ukraine, globally surging inflation and supply chain worries -- is a good thing? The public's unhappiness with much higher inflation has, understandingly, driven consumer confidence well down from both its 2017 - 2019 and its mid-2021 levels. Chart Source: Value Line Low consumer confidence has given rise to ubiquitous talk in the media about the coming recession. Higher interest rates and curtailment of quantitative easing could send America into recession. The facts, though, indicate that falling into recession is no sure thing. We had a brief profit setback in the first half of 2020 due to government-imposed business shutdowns and the confining of many Americans to their own homes amid the pandemic panic. That was confirmed by the sharp decline in leading economic indicators. Chart Source: Value Line Since then, however, the trend in that same business gauge has been strongly positive. Most of the companies I follow have been meeting or exceeding profit forecasts. Many are posting all-time record revenues and earnings. Those great reports are not consistent with recession fears. Chart Source: Value Line Monthly retail sales at all-time highs also debunk the myth that our economy is ready to collapse. Betting against the America consumer rarely pays off over the long term. Why, then, is such a high percentage of investors trading as if a major recession is ready to show up? They are falling prey to media pessimism, while failing to note the actual facts. Bad news sells. Think back to March 23, 2020 when the last bull market swung into effect. The news back then couldn't have been much worse. Those who shied away from buying stocks that were already knocked down by huge percentages missed spectacular buys. We appear to be in exactly that situation again. Many skeptics called the upturn that began in late March 2020 a bear trap. The very sharp rally that started on June 17 is being viewed that same way. Rather than waste time trying to predict when, or if, a recession is on the way, why not simply buy shares that appear quite undervalued? American Woodmark had a dreadful fiscal 2021 (ended April 30, 2022) but is primed for a huge rebound in the year already begun and beyond. The shares were just north of $54 three weeks ago before selling off to a new post-2020 low of $40.70 last week. That final bottom was set due to panic selling in the overall market rather than fundamentals. Fiscal first quarter earnings per share topped the year-earlier results and the next few quarters are going to show enormous year-over-year comparisons. The unjustified selloff tempted its insiders to make even more open-market purchases last week; 12,000 shares were picked up on June 22 and 23 at less than $42. On Friday, AMWD closed at $45.92. My mid-range target price for AMWD by this time next year remains at $120. Berry Global Group followed a similar path since last fall. My graphic from last November was made when fiscal 2022 (ends Oct. 1 2022) EPS were estimated to come in at $6.35. Since then, management has raised guidance to a range of from $7.20 to $7.70. Value Line's latest expectation for the fiscal year ending soon now centers on $7.45. Clearly BERY is worth more on an absolute basis now than more than seven months ago. It's also miles more valuable than it was back in 2017 when EPS were on track to hit just $3.07. What happened to BERY's share price in the face of record profits and increasing guidance? By Jan. 5 Berry Global had advanced to a new all-time high of $74.73. The crazy selloff in the general market then took BERY down to $50.10 on June 16 as the major indices all carved out new 52-week lows. Factually speaking, BERY has never been worth more. Yet its shares had dropped by 32.96% from its January peak. If that is not illogical I don't know what would be. Those who bought the Jan. 16 nadir were already up more than 14% by June 24. If BERY simply reverts to a more normalized 17.5 multiple it could easily reach $130 before year end. That implies upside of 128% from last week's closing quote. AMWD and BERY are just two of many outstanding bargains available now. Their current quotes are so far below their true values that potential rewards far outweigh risks, including that of a recession that might or might not occur. It is not possible to maintain true buying power by holding fixed income vehicles which pay less than the inflation rate. Shift your focus from the macro environment to what individual stocks are worth. Your investment results will likely be higher and your blood pressure will get lower.

Get the Facts, Not the Hype, Then Trade

Rather than waste time trying to predict when, or if, a recession is on the way, why not simply buy shares that appear quite undervalued? Here are two to start with.

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