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Investing isn't much fun these days. Everyone seems worried about something -- high oil prices, the credit crunch, bank failures, the rising foreclosure rate, consumer spending, political uncertainty, earnings growth, the risk of recession . . . the list goes on and on and on.
It's a half-empty kind of mentality, and it's killing portfolio returns -- unless you were smart enough to load up on gold or solar stocks a few months back. Even the big tech names -- Google (GOOG, news, msgs), Apple (AAPL, news, msgs), Research In Motion (RIMM, news, msgs), Amazon (AMZN, news, msgs) -- are showing signs of cracking under the pressure.
Certainly there's little appetite for risk, and that's bad news for a strategy designed around buying out-of-favor turnaround situations. While the stocks in my portfolio are well-suited for the long term, they are getting killed right now, and I don't expect that to change tomorrow or even next week. Cash would be better, but the goal is to teach how to construct certain portfolios, and, well, all cash doesn't take much effort.
What we want to start doing is identifying those areas to buy once the bottom gets set. For longer-term investors, now looks like a reasonable time to start nibbling at the housing sector. Stocks like Ryland (RYL, news, msgs) and Toll Bros. (TOL, news, msgs) are beginning to build bases just off their lows. They might move sideways for another month or two, but the technical pattern suggests that the carnage is over.
Wells Fargo (WFC, news, msgs) and Capital One (COF, news, msgs) aren't going out of business. Once the dust settles, all of these stocks will come roaring back. You probably want to wait for the sector to put in a couple of months of base building first, but after that you want to buy the quality names aggressively.
Finally, retail has just been crushed -- especially apparel retailers. Names like Coldwater Creek (CWTR, news, msgs) and Chico's FAS (CHS, news, msgs) are trading at price-sales ratios that suggest going out of business, yet both are strong franchises with decent financials and plenty of growth opportunities. These are stocks that should start bouncing back come late winter.
I know it looks ugly right now. And as I said a little while ago, raising cash is a prudent course of action. However, this too shall pass. In the meantime, there's some incredible value being created right now, and in time I'm sure we will turn today's pain into tomorrow's gain.
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