Wednesday, January 7, 2009

* 2008: It Wasn't All Bad

For most people, 2008 will not be looked upon with fond admiration. The average investor likely suffered their largest portfolio loss in 2008, if not in dollar terms, certainly in percentage. However, if we stop and reflect, we just might find some good in 2008. With that in mind, let's consider the following:

A New Dose Of An Old Reality
Prior to every dramatic market decline is an unrealistic optimism, usually coming from the media and fed by inexperienced investors. Remember the "paradigm shift" from years gone by, where "we are now operating in a new economic environment and it is now normal for the S&P 500 P/E ratio to approach 30." The paradigm shifted back to its historical normal then, as it did now.

The old timers understand this and say things like, "when your barber and butcher start talking about the stocks they are invested in, it is time to get out of the market." The gut wrenching decline suffered last year will help purge those that really should not have been in the market. Over time this will reduce volatility.

Opportunity To Strengthen Your Portfolio
As blue chip dividend stocks rise in value, their yield shrinks to levels that make them unattractive. Dividend investors are sometimes guilty of adding more risky stocks during a bubble to maintain a reasonable portfolio yield. Here are some blue chip dividend stocks that have been trading at attractive values:

Procter & Gamble Co. (PG)
The Procter & Gamble Company (P&G) is focused on providing branded consumer goods products. The Company markets its products in more than 180 countries.
Buy Price: $66.10

Johnson & Johnson (JNJ)
Johnson & Johnson engages in the manufacture and sale of various products in the health care field worldwide.
Buy Price: $67.70

Kimberly-Clark Corporation (KMB)
This global consumer products company produces tissue, personal care and health care. Its brands include Huggies, Pull-Ups, Kotex, Depend, Kleenex, Scott and Kimberly-Clark.
Buy Price: $52.87

Some Stocks Performed Well In 2008

For all the doom and gloom we were subjected to each night during the market news, some stocks did quite well. A well diversified portfolio will produce some winners in any market. Two stocks in my portfolio that performed admirably were:

McDonald's Corp. (MCD) - 2008 TSR: 10.1%
McDonald's Corporation primarily franchises and operates McDonald's restaurants in the food service industry. These restaurants serve a varied, yet limited, value-priced menu in more than 100 countries around the world.
Buy Price: $46.31

Wal-Mart Stores, Inc. (WMT) - 2008 TSR: 19.9%
Wal-Mart Stores, Inc. operates retail stores in various formats worldwide. It operates through three segments: Wal-Mart Stores, Sam's Club, and International.
Buy Price: $62.40

In times of financial difficulty, consumers look for value. Both Wal-Mart and and McDonalds built their empires on delivering value to their customers.

What will 2009 bring? I don't know the specifics, but I do know it will bring opportunity and more importantly, it will bring us closer to the next great turnaround.

Full Disclosure: Long PG, JNJ, KMB, WMT, MCD

Tags: [JNJ] [KMB] [MCD] [PG] [WMT]