Trying to call short-term market movements is a fool's game. The week ended June 17, 2022 was one of the worst selloffs ever.
There is plenty of bad news In the air and lots of reasons for people to feel bummed out. When you are feeling scared and nervous, though, so is almost everybody else. In a supply/demand auction system that is when prices are the most severely depressed.
Forced selling due to margin calls exacerbated that. So did Friday's Triple Witching option and futures expirations.
When you hear that "everybody is selling" always remember that there is a buyer on the other side of each trade. The net capital flow is thus always neutral. The idea that there can be a buildup of extra "cash on the sidelines" is thus a fallacy.
Individuals may raise cash by exiting equity holdings but the counterparties to their sales needed to use their previously uncommitted money which is now removed from "the sidelines."
Technical analysis will always show negative momentum and "horrible chart action" on the day when stocks are at, or near, their final bottoms. Those charts, though, tell you absolutely nothing about the true value of the shares you are looking at.
Media talking heads also virtually ignore valuation when speaking on the net or TV broadcasts. That is a major mistake. The table below details 17 of my very best ideas as of June 16 and their present day prices, yields and earnings multiples compared to what they fetched at prior years' all-time peaks.
P/Es are at huge discounts to the old levels. Absolute EPS on 14 of the 17 are higher now even as the share prices remain at fractions of the previous peaks. Ten of the group pay dividends while you wait for the next big rebound. Five of them yield greater than 3%.
Many expect to raise, or resume, their payouts going forward.
Every one of these is profitable. Each has a good, or even debt-free, balance sheet. Thirteen of the 17 companies are now available at single-digit P/Es.
The percentage declines from the old peaks are enormous for all but Griffon (GFF) . The reason for that is simple. EPS were $1.61 at the old high price but are now projected to reach $3.66 this year. GFF ran up to $33.38 not long ago before getting knocked back down along with the recent pervasive market decline. GFF's old P/E was 17x versus a current forward multiple of just 7.4x.
The Law of Asymmetric returns has not been repealed. Large percentage plunges eventually give way to enormous percentage recoveries.
Many of the stocks on my list are down more than the 60% bottom rung on the table above. As they recover I expect to see 100%, 200% or even larger gains from today's price points.
If you haven't been buying lately what is it that you are waiting for?
By the time good news arrives the current prices and valuations will no longer be available.
There is no way to be sure that stocks can't go a bit cheaper before turning around. There is also no way to know we didn't see the final bottom during the June 16, 2022 bloodbath.
You can feel secure that owning these fine companies at such discounted entry points are very likely to produce exception gains. V-shaped rebounds are quite common following V-shaped selloffs.
If you're holding cash it's time to put it to work. Holding excess reserves at market nadirs only inhibits your final recovery.
Those who are fully invested might wish to consider Roth Conversions of Traditional IRA holdings while the stated values are extremely low. The tax you'll pay on the money moved can be dwarfed by the future tax you'll save after the same stocks rebound in tax-free status.
Ethan Allen (ETD) , Bassett Furniture (BSET) and La-Z-Boy (LZB) are not on my Sweet Seventeen list but each pays a generous, well-covered yield while offering outstanding potential gains that should far exceed traditional defensive names.
(Paul Price is a regular contributor to Real Money Pro. Click here to learn about this dynamic market information service for active traders and receive columns like this from Paul Price, Doug Kass, Bret Jensen and others others every day)