Jeff Miller | Jul 14, 2016 02:07AM ET
As markets make new highs many traders and investors have been left behind. Some are now considering climbing aboard. Fair enough, markets making new highs usually move even higher.
However, some worry that they have missed a false rally. Mrs. OldProf is encouraging me to keep it brief for a change, so you can just read the statement below if you want. Those who want some reasoning need to go through the rest. I have summarized the most important current issues as briefly as possible.
This is a good time to invest, and an exceptional one if you choose your holdings wisely.
h2 What not to do/h2Most investors cannot distinguish the good from the bad, so it is better to ignore it! Here is why it is mostly biased and inaccurate.
The combination from all of these sources creates a negative picture that is difficult to put aside – especially since part of the story is true.
h2 The Investment Climate/h2The current climate has two very distinct parts:
Whenever there are extremes it represents an exceptional opportunity for the insightful investor. You may never find a better time to buy cheap stocks (on a P/E basis) in cyclicals, energy, materials, technology, and financials.
The new market highs are a bullish sign. The market may move higher, as the astute Eddy Elfenbein predicted Dow 20K rather than Dow 5000, a popular theme at the moment. Eddy suggests that it could happen this year). The anchor acts like Eddy is crazy. It is only an 11% gain from here. CNBC regularly features people calling for market declines of 40-50%. This segment has some good stock ideas as well, including Goldman Sachs (NYSE:GS), IBM (NYSE:IBM), JP Morgan (NYSE:JPM), and Microsoft (NASDAQ:MSFT).
The media world has turned into a silly competition to present the direst prediction. Some forecasters are determined, for whatever their motives, to scare you witless (TM OldProf euphemism). Those who are bullish are scorned for suggesting that the new highs might lead to another 10% or so. In fact, if you pick the right stocks, the gain could be much greater. I find a lot of stocks that are 25% or more undervalued.
If you do your homework, it is pretty easy to construct a portfolio with a P/E that is significantly lower than the overall market – even sticking to large or mid-cap stocks that anyone might want to own. Apple (NASDAQ:AAPL) is an obvious example. Ford? Best earnings ever and the best-selling vehicle. P/E under 7 and dividend yield almost 5%. That is an excellent example of the intense skepticism of this market.
h2 Conclusion/h2There is definitely a bubble, but not where most think. Look at any stocks in the “quest for yield.”
Even if you do not expect big gains from the overall market, there are plenty of sectors ready for an explosion. It is a great time to invest in stocks, or to improve your asset allocation. You have a lot at stake.
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