Listen to this article
I really don’t like most financial media. Clearly the Fed is important and we should think about it. But let’s not have every article or news clip be about the Fed. Fed Fed Fed. That includes this newspaper. I’m fed up with the Fed. Fact: there is zero correlation between fed rates and stock market returns.
Second, no more articles about the World Bank, please. Can I borrow money from it? No. So leave me alone. As for articles about the New Zealand dollar – just stop it. All currencies for that matter.
Three people read those articles, and for a market that trades tick-by-tick, any articles or television spots about the Dinar are coming a day too late and a dollar too soon (or whatever the expression is).
Now to unemployment. There was a lot of focus last week on the employment figures. What happened? There was no change whatsoever. Out of 100m jobs we had 4,000 fewer than last month. And the unemployment rate stayed the same: 4.6 per cent.
And before we say “the consumer is dead”, note that Wal-Mart, the biggest store in the universe, had 3.1 per cent same-store sales growth.
So what do people want to read in a newspaper or watch on TV? Two things: they want to know they are OK, and they want ideas to make more money (or to at least preserve and grow it).
So are you OK? The answer is yes. The markets are only a few per cent from all-time highs, both US and the global aggregate markets. The only way you are not OK is if you didn’t diversify in the bust. But even if you bought a portfolio diversified over value and growth, across sectors, across market caps, at the absolute peak of the markets, you’d be in great shape now.
And that holds for every other crash, or recession. And let’s not forget, of the last 11 recessions, six produced rising stock markets from the beginning of the recession to the end of the recession. You’re OK. Move on.
Now let’s get to the raw ideas. The only stocks that the financial media talk about are Google, Citigroup, Apple, Microsoft and a handful of others. But there are 8,000 public companies. Let’s take a look at some – really quickly, because it is a fast-paced game.
American Eagle Outfitters – don’t listen to people saying consumers are dead. They aren’t and the top executives and directors at American Eagle Outfitters have been buying millions of dollars of their own stock on the open market this past month. The company trades for 6.5 times cash flows and is my back-to-school pick for the next week.
Mattel – the world’s largest toy company has just recalled 800,000 toys because of lead paint issues with its Chinese manufacturers. Some people are saying the brand value of Mattel could suffer.
But seriously, this is Barbie. It is not going to suffer. The stock trades for 12 times next year’s earnings and the company is buying back $500m worth of its own stock. The company is confident and we should be too. .
Frontier Oil – my favourite oil pick. The stock trades for less than five times cash flows. It has had its most profitable quarter in history. And it is buying back $300m worth of its stock.
Smithfield Foods – China consumes 100m lbs of pork a year and that number increases every year. However, up to 20 per cent of this year’s pigs are off the radar because of disease. Who does China call? Smithfield Foods, which just agreed to send 61m lbs.
This is going to be like the Google of pork over the next year of so. My guess is the 61m lbs are a start and although it’s only a drop in the bucket right now (the company produces more than 3bn lbs of pork a year), I think the amount the company ships to China could go a lot higher.
Polycom – 99 per cent of all meetings in the office are worthless. People don’t know what to do from nine to five so in order to justify their jobs they have meetings. The worst thing you can do is take it one step further and fly to a meeting. Just use Polycom to set up your video conferencing. In fact, with 40 per cent revenue growth over the past year, a lot of people are doing just that. And at 16 times cash flows, it’s cheap enough to be called dirt cheap.
Universal Electronics – one trend we can always bet on is that people next year will always be lazier than people this year. That’s why Universal Electronics is the perfect stock: it licences the patents for all your remote controls. This company can’t handle the demand. It has 90 per cent earnings growth and $80m of cash in the bank.
As Larry Sanders used to say on HBO: “No flipping!”