Thursday, April 28, 2011

We are still worrying! - Good


Microsoft's profits are up 31%. RIM is trading at a P/E of 8.6 - lower than BCE or the Canadian banks. Yet these stocks tank and 'experts' are worrying the loss of market share to competitors such as Apple and Google. Strange, you would think that Apple's stock would tank with the release of RIM's playbook.

I bought one, a Playbook that is. It is a lot less clumsy than an I-pad. Lack of applications? There are 521 business aps; 687 entertainment aps, finance aps: 307, and games 1361. Do I need to go on? News: 637. My computer nerd of a son tells me that it is a lot easier to program apps for Playbook than I-Pad. Well the stock market doesn't care!

RIM, Cisco and Microsoft are considered as good as dead no matter how many new products, profits and cash they have on the balance sheet. Canadian oil companies are treated the same way. CNRL is $ 7 dollars below its 52 week high with oil trading at $112 per barrel. Cenovus just got a licking. The Power Corp stocks are also in purgatory.

Have you seen Rogers lately? Hmmm compare that to Tim Horton's, Canadian banks such as TD that trade at 15.1 x earnings, or real estate stocks such as Boardwalk and RioCan.

Every day you're opening the newspaper and you read that rising corporate profits are the norm. Your cpmpany misses earnings by 1 penny and your stock is like the dodo! Economic data is pointing to a continuing recovery with sales going up. But everyone is worrying about competition, the dismal economic outlook which usually turns out better than expected, etc., etc. The only stocks that do well are the ones that are 'in fashion' but you go a tiny distance of the beaten track and there are depressed stocks galore!

If it is not about the slow recovery or about the high level of competition, we can also worry about the liberal/NDP coalition which will vote down a new Conservative Government as soon as it is installed. As if the Conservatives with a near majority number of seats wouldn't close down a coalition government as soon as Gilles Duceppe goes out for a leak! We could also worry about the European debt crises while corporate cash coffers grow and grow. Oh, the market is going to hell in a hand basket!

Well, one thing is for sure. Although the Dow is outperforming the TSX, nobody is euphoric and believes that tomorrow the market will up another 15%. Instead, we worry and worry and expect the worst. Good, then we don't overpay and we don't get overconfident and there is likely still a lot of upside and less chance of a real crash! With many companies paying dividend yields higher than 10yr government bonds there is little reason for a crash! And… after a while, today's chicken littles will miss out on said dividends and modest appreciation. That is until the day they realize that they have missed the boat. Then in a panic they'll start buying at ever sillier valuations.

That is the time we'll sell. For now keep your chin up, enjoy the dividends and look forward to the days that the chickens pay silly prices for your stock holdings. Remember my guess - TSX peaks around 18,000.

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