It’s official. When Jim Cramer says panic, you’ve got the buying opportunity of a lifetime.
I can’t call the precise bottom. We’re in a period of testing lows. We are not going straight up.
But we are going up. Here is why.
The Fed and Treasury Department are dedicated to freeing up liquidity, worldwide, and they will succeed in time. The CDOs will be unwound even if the $700 billion has to be invested several times. With Europe divided and Japan frozen in fear, the world has no choice but to accept those dollars and use them to jump start their own economies.
That’s what makes this so delicious. It’s like unclogging a drain. Once the obstruction is gone things will flow fast. At that point we will need to take back much of that liquidity. Inflation will be a worry. But you’ll have the added liquidity, plus the unfrozen liquidity, all looking for opportunity.
Market goes up.
So now is the time to start picking up some bargains. If you don’t
need the money now it’s time to pick up some good stocks. If you need
the money soon stay in bonds. Government bonds will pay off over time.
Cash, on the other hand, will degrade in value, because the interest
rate you get on cash deposits is far less than inflation.
Why not use mutual funds? Because no matter how smart your mutual
fund manager, your fellow owners are listening to nervous nellies like
Cramer. The managers have to sell when the nellies decide to redeem, so
you get hammered no matter how smart your manager is.
What stocks should you be looking for? I’m not going to make specific recommendations, but here are some good criteria:
- You need to see a lot of cash on the balance sheet.
- You want companies which generate a lot of cash.
- You only buy companies that are leaders in their markets, nay dominant.
- You want companies that make things people need, and save companies money. Exception, houses.
- Buy American. First into trouble means first out.
- The P/E "sweet spot" is under 15.
Traditionally markets bottom out at an average P/E of 10 and top out
near 15. The last decade has seen P/Es ranging all the way up to 27.
Those days won’t be coming back soon.
Some specific names,with links to their Google Finance page so you can keep up in real-time:
- At $24.50 per share Microsoft’s P/E is under 13.5. I’m just saying.
- At $17.15 per share Intel’s P/E is about 14.25.
- At $22.25 per share GE’s P/E is down near 10.
- At $100 per share IBM has a P/E of about 12.
I’m not recommending any of these stocks, specifically. I happen to like technology as a long-term play. Find your own. Then follow them down and when they look attractive buy ’em.
In five years you’ll be glad you did.
