We are getting to a point where the weak companies are starting to underperform the well managed. Since the bottom, pretty much everything went up, in convoy formation. There was no premium put on stock picking, since melt up was contagious. Over the past year, I suspended listening to conference calls, speaking with management, and crunching numbers, because it was pointless. However, I am starting to notice a divergence between the weak and the strong. As a result, I have been putting in a lot of hours again, going over SEC documents, listening to calls and speaking with idiots at investor relations.
As earnings normalize, it’s important to understand what valuations to apply to stocks, with reference to underlying industry. For example, traditionally, semiconductor stocks trade at a premium to industrials and big banks trade at a discount to asset managers. There is a reason why Goldman Sachs Group, Inc. [[GS]] is trading at such a low valuation, as well as Amazon.com, Inc. [[AMZN]] trading so richly. The key is to compare companies within their respective sectors and look for anomalies and/or disconnects from reality.
For example: Jarden Corporation [[JAH]] is trading at a discount to Newell Rubbermaid Inc. [[NWL]] , Whirlpool Corporation [[WHR]] , [[NPK]] and Martha Stewart Living Omnimedia, Inc. [[MSO]] on a FPE, P/B basis. Why?
Well, we can speculate that other companies are eating into JAH’s shelf space or people are tentative about going long Jarden due to their sensitivity to retail trends. In my opinion, and this is an educated bet, investors are fucking smoking jumbos, selling JAH at 10x eps.
Get your spreadsheets out and start comparing valuations and look for sectors that have earnings power.
Who has earnings power?
Any company that services the global growth story, like Cummins Inc. [[CMI]] , Eastman Chemical Company [[EMN]] , Lubrizol Corporation [[LZ]] or Apple Inc. [[AAPL]] . Try to avoid niche plays, unless of course you already have ample exposure to leadership stocks. Often times, people fuck themselves by trying to be too smart, via buying dogs. Truth be known, I have done this to myself on numerous occasions. Aside from the crappy stocks that you know me for (FTK, GMXR, SD, etc), I own a plethora of leadership names, like Goldman Sachs Group, Inc. [[GS]] , POSCO (ADR) [[PKX]] , Eastman Chemical Company [[EMN]] , Cytec Industries Inc. [[CYT]] , [[CBD]] , Teva Pharmaceutical Industries Ltd (ADR) [[TEVA]] , Citigroup Inc. [[C]] and ICICI Bank Limited (ADR) [[IBN]] .
Sometime soon, as the economy improves, certain sectors will be bought up by money managers, due to the important theory of “multiple expansion.”
What does that mean?
Answer: go fuck yourself.
Do some research and try to avoid them fucking murderholes.
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Ppt
The Fly is God!
great post.
If China continues to sell off, good companies go down along with the bad….am I wrong?
Great post fly. Still, what I can’t help seeing today is that the market is up big and TLT is flat. European money is coming into treasuries. ok, we know that. but I am seeing TLT carve a bottom here, not go over the cliff. If the leaders can’t make new highs, we might well be seeing a double top forming, at least short term, wall of liquidity or no wall of liquidity.
Just playing devils advocate here.
By the way, the republicans have folded their hand. The GS kabuki has managed to make even that bunch of shitheads get on the reform train. Why? Well, whatever you may think of Levin and the rest, they managed to dramatically present, for all the world to see, exactly what GS’s business model is and the direct conflict of interest it has as a market maker/hedge fund. Personally, I have mixed feeling about curtailing their business model, by forcing their “hedging” onto some kind of derivatives exchange, but I don’t see any other way to stablizing the huge nominal market in derivatives. That is the fundamental problem from a systemic point of view–and its separate and apart from the entire political question of whether or not we as a country want to defend what has emerged as a financial oligarchy.
The squid is a leadership name alright, they are leading us right into the bowels of Hell.
Cliffs just fell off a cliff.
CLF
Mssr. Fly: How would you determine the correct level to buy any of the sector names you suggest?
Growth, FPE or PEG ratio.
Depending on sector, P/S, P/B, divvy and net cash per share ratio.
Ultimately, we could be chasing stocks to the top and then fuck ourselves something awful. But, until we peak, valuations will continue to edge higher. Doing compares of stocks in similar sectors is a quick, back of the envelope way, to find possible disconnects.
Thank you.
Except that some of the weaker companies are now purchase bait (like Palm getting swallowed up by HP yesterday) and that means some may see a pop upward as big companies bring cash to the market.
Is the same warbucks/warbuckz that I know?
It’s Big Daddddy Warbucks
M and A is a total different beast. Good point.
I have never seen it like this.
Anecdotal, of course, but…
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with my money I play TIVO here
http://ibankcoin.com/henry_fool/2010/04/29/dont-buy-tivo/
Who did Henry Fool piss off? His blog has disappeared!
The gods, who else?
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do you have an outlook for SD by years end?
I would hope higher prices.
I was just curious since RC has mentioned getting big in SD and it was your pick for the Stock of the Year 2010 contest.
Nasdaq internals extremely bullish, but very low volume on $QQQQ .Its a rare, and bearish, omen to see internals and volume disagree so strongly
Many rave about the single malt, but the blend can be better, its just that its more often not because its difficult to do. Requiring great skill, knowledge, experience, timing and finesse.
Much like this blog.
I enjoy the burlap burning as much as the next guy, but great to read posts such as this. Perfect balance.
PS. I banked 200pts from selling DOW because bloomberg ran a headline saying “stocks cheapest since 1990”. Starting to think like Russell Crow from A Beautiful Mind, which is worrying. More worryingly it worked.
Off to research “multiple expansion”, hopefully it doesn’t involve an endoscopy.
WTF are you talking about dude? SP valuations are at all time high never been higher in the history of SP and you coming out with some BS eps valuations please….. let the printing machine roll thats all….
Al
You are lying.
EPS for 2011 is estimated at 90+. How is that all time highs?
very close or there about you get my point… this is not a fundamental rally or growth or eps expansions … this is a printing press rally
Irrelevant. It’s still a rally.
I dont doubt that at all I just dont like people to make assumption like its based on fundamentals or whatever Mr Le Fly is trying to say
It’s not a rally yet, it is a reversion to the mean. A rally will come when all those Bond $$$ flow over into equity.
A printing press rally should translate directly into a fundamental rally, since increased currency circulating through the markets should spur an increase in revenue in companies and ease the paying off of debts.
At the end of the day, then, you want to make sure your stocks appreciate well above what the general inflation of the market is. However, the advancement still appears in certain fundamental characteristics of the companies in question.
Is Henry Fool gone? Forever?
IMAX just made my ticket prices btfo. Subsidized by CAEI 25% sale.
He IMAX’d himself out.
I like Henry. I will discuss the matter later.
The IMAX call was terrible and lost people a lot of money if you were wreckless and bought a lot…
HA! Henry Fool: a good film.
If IMAX reaches 21 by the end of the day will you reinstate Henry? Last chance… I want him back..
Thanks bubo but your wishes will fall on deaf ears.
PS when you say research, where do you recomend to start? Its one thing reading all the millions of sites of bullshit people post daily and class as intelectual input, and its another to get actual worthy information.
Any suggestions welcome.
The SEC documents themselves are your best bet.
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Thanks, will start there 🙂
Looks like R.W. is back from the Vatican
AI: “WTF are you talking about dude”
Is that to my post? I thought it was, apologies if not. What I’m talking about was a headline bloomberg ran. NOT my opinion. They said “valuations cheapest since 1990” on the front page a few days ago. Which is why I went short the dow. The same thing was said about oil at $140 a barrel. I sold that too….. and cried as it went $147 🙂
The same thing was said when we had a _correction_ q3/q4 2007.
When everyone is in agreement, its usually time to do the opposite.
Whaaa? No more Fool? What happened? If so, I will miss his fist pounding…
The Fool was boring and made terrible decisions, but I suppose that goes with the name…Fool
Yeah those bad decisions made me over 100% last year. Sorry if you couldn’t make it work!
100% doesn’t cut it on iBankCoin!!!! lol.
Sorry for the remarks, best of luck on your new adventure, I’m sure you’ll be fine and your reader base will follow you.
No doubt Henry, I have been following you and have seen great call after great call. So, IMAX did not explode… who cares? If you bought it then just hold onto it. Everybody is too fucking sensitive. Best of luck Henry!
I think FTK was more terrible that IMAX….
Not the call, but the presentation.
tx will get on it …
Fly- Any thoughts on the JAH $56 million charge in the first quarter due to inflation in Venezuela
speaking with idiots at investor relations.
Truly a waste of time, no?
Try to avoid niche plays, unless of course you already have ample exposure to leadership stocks.
How is it you do not own CREE? The “Dear Leader” among leaders?
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I love CREE but I think it’s going to 72ish
That’s where I’ve got some add’l buys as well.
“FYMTGE”
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I’m adding to my CREE stash at 72 and buying VECO at 43.
VECO is a Lawn Guyland company (Plainview).
It will represent.
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Not a bad place to add EMN on pull back and gap fill
Fly or anyone around…Question that I can’t figure out…..with the 4th heaviest Volume trade being PALM which is up 26%, wouldn’t
that push up everything and trigger all the program trade systems?
Say wha?
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