Tuesday, August 11, 2009

* Another Call For The Bottom

The markets have seen some significant gains since their March lows. Each time this occurs there is a new round of experts calling the bottom. Time and time again the market throws them a cruel twist and heads lower. Will this time be different?

Recently, Daniel Gross in a Newsweek article stated, "The Great Recession, which rolled over our financial lives like one of P.J. Keating's giant pavers, is most likely over." He went on to make the following observations in the article:
  • The U.S. economy shrank at nearly a 6 percent annualized rate between September 2008 and March 2009, placing the global economy into recession for the first time since World War II.
  • Home sales have risen for three straight months—a first since 2004.
  • The stock market has rallied 44 percent since March.
  • Seven of the 10 indicators in the Conference Board Leading Economic Index pointed upward.
  • When economists proclaim a recession over, they mean economic output has stopped contracting.
  • The U.S. economy needs annual growth of at least 1.5 percent just to feel like we're standing still.
  • Unemployment is likely to keep climbing.
  • "I see 1 percent growth in the economy in the next few years. It's going to feel like a recession, even when it ends." stated New York University economist Nouriel Roubini
  • The Obama administration's strategy rests on what some might call industrial policy or excessive government intervention—or even creeping socialism.
Not surprising, a lot of the hardest hit stocks have seen the largest increase off their 52 week low. Based on August 4, 2009 prices, these would include: General Electric (GE) 141%, U.S. Bank (USB) 169%, Manulife Financial Corp. (MFC) 249%, AFLAC Inc. (AFL) 268%, Bank of America (BAC) 518%.

Not all dividend stocks have fully enjoyed the recent run up. Some are still relatively close to their 52 week low and are fairly valued based on my buy price. Based on August 4, 2009 prices, here are some to consider:
  • Procter & Gamble Co. (PG) - 26% - Recent Price: $55 - Fair Value: $65.98 - Analysis
  • Sysco Corp. (SYY) - 26% - Recent Price: $24 - Fair Value: $27.56 - Analysis
  • Automatic Data Processing Inc. (ADP) - 23% - Recent Price: $38 - Fair Value: $40.86 - Analysis
  • McDonald's Corp. (MCD) - 20% - Recent Price: $55 - Fair Value: $67.86 - Analysis
  • Wal-Mart Stores, Inc. (WMT) - 8% - Recent Price: $50 - Fair Value: $56.19 - Analysis
I look at a market recovery as a bitter-sweet event. For a dividend investor, buying stocks at a highly depressed price is a Godsend, but for the market to remain healthy and liquid, it must eventually rise.

Full Disclosure: Long MFC, AFL, PG, SYY, MCD, WMT. See a list of all my income holdings here.

Tags: [ADP] [AFL] [BAC] [GE] [MCD] [MFC] [PG] [SYY] [USB] [WMT]