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Strategy Lab is MSN Money's stock-picking challenge. To learn more about the game -- and the contenders -- click here.
This round of the Strategy Lab starts off with the market at a turning point. Whereas a series of Fed rate increases crushed the market and helped to accelerate the collapse in the housing sector, we are now faced with a much friendlier Fed.
Despite its decision to cut rates by three-quarters of a percentage point earlier this month, there's a good chance the Fed will cut the funds and discount rates by an additional half-point this week. A quarter-point cut is all but in the bag. Expect rates to continue drifting lower for the next few months as well, as the Fed does all in its power to prevent a credit-led recession from growing too deep.
Added to the Fed's generous mood is a favorable climate in Washington, where politicians are tripping over themselves to cut taxes and put some cash back in the hands of American consumers. Considering that Americans traditionally spend more than save, the added fiscal stimulus is insurance against a prolonged downturn. Again, it's not the picture we were presented with a few months ago when the street was bracing for higher taxes from a likely Democratic president.
Finally, stock prices are sharply lower than they were just a couple months ago (just look at my performance from last round!), and that means there's more value in the market. It also means there are more dogs to be found.
However, when searching for investment candidates this time around we will remain mindful of the overall macro-climate and act accordingly. As indicated, conditions are pretty good right now, though we won't see the impact from these actions on the bottom line for months to come. Nevertheless, the tone has changed and that alone should mean good things for the market.
I'll begin the round slowly by adding three positions. First is in the retail sector, where I love to shop -- both in general and for stocks. One of my favorite's right now is superdog Chico's FAS (CHS, news, msgs). The stock is down 60% over the past 52 weeks and for good reason. The company has failed to get its merchandising mix right for nearly two years now and, as such, has lost share to an increasingly competitive field. Management turmoil hasn't helped, nor have relatively poor results from some of its new concepts. This is a broken company.
But the good news is that a new management team is in place; the market population is strong and growing; comparisons are just plain awful, so showing improvement will be easier; and insiders are actively buying the stock.
The stock has bounced a bit in recent sessions amid increased optimism over consumer spending, so I'll place a buy order for 1,000 shares below current levels at $8.25.
My second buy is another one of my favorite industries: gambling. Here we have seen Las Vegas Sands (LVS, news, msgs) get creamed by investors over the past several months.
First, there were the "disappointing" results in Macau, followed by general concern over consumer spending and increased capacity in the industry. Though all of these have some merit, none of them is significant enough to thwart what is the overriding story of growing demand, relatively high margins and strong top- and bottom-line growth. Whereas American vacationers might cut back this year due to the economy, the weak dollar makes the U.S. a travel destination for foreigners, and Sin City is always a top destination.
Secondly, the potential for growth overseas not only in Macau but in Tokyo and Singapore is considerable. Finally, this is a well-run company that knows how to make money in a business full of it. I'll place an order to buy 150 shares at $81.
Finally, I'm going to bet on the best technology play of the last several years: Google (GOOG, news, msgs). Google has come down hard as investors shy away from risk and worry that the company's momentum has to slow. Well, at current levels this monster company is just too cheap (27 times forward estimates) to pass up. I'll add 30 shares at today's open.
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