Stock talk for the main street investor.
May 18 2010

Euro Crushed US Stocks

We’re back at it. Panic has hit the street and the US becomes the logical place to hide. This forces the euro lower and causes many stocks to suffer because of heavy focus outside the US. Multinationals like GE and 3M are hurt as well as euro based companies like Vestas.

But this doesn’t really make any sense long term. As a whole the EU is in better financial position than the US. There are pockets of trouble and there will be pain to fix them but I am more worried about US deficits and China collapsing than a tiny place like Greece.

So what’s going to fix this? Trading happens so fast these days that huge positions can be put on and taken off in the blink of an eye. There are big time traders that are short the euro right now and when the euro strengthens or the stock market starts rising they will have to cover their short positions and drive both the currency and stocks higher. It’s a classic momentum trade.

I’m not too concerned about the long term but it’s bound to be a bumpy ride for the next few months.

May 10 2010

The Market Rages Back

Whiplash has probably set in for most investors after the market went up 4% today. A little certainty in Europe apparently goes a long way for the US markets. What these dips do is give an opportunity to see what the market undervalues and underestimates right now.

If you’re like me and you think we’re headed for a long slow recovery you should take a long term look at where the economy is going. I would stay away from anything to do with housing. The housing market will be mired in a slump for 5 maybe even 10 years before we get back to normal. I would also start to be cautious with China. There’s a lot of bubble talk and even though a Chinese bubble wouldn’t be as bad as a US or Europe bubble it could be disastrous for China focused companies.

What I do like is energy and tech. Whether you believe in natural gas, oil or renewables there are great values given the uncertainty in our energy future. I’ve talk at length about my renewable picks but if you like fossil fuels this might not be a bad time to take advantage of a dip after the gulf spill. Check out Atwood Oceanics (ATW) for a drilling play that’s relatively cheap.

In tech I like the big names like Intel (INTC) or AMD if you want a little more risk. I still think Apple is overvalued but HTC (2498.TK) is in a similar market and also makes innovative products. HP (HPQ) and Dell are also reasonably valued.

A way to reduce risk in these markets is to sell call options on stocks you own when the market is up. It gives a little protection especially with volatile stocks. I’ve recently sold LVS call option to cover my position. If they get called I have a nice 10-13% return in a month. If not I pocket an extra $1 per share.

Disclosure: Author is long LVS and short LVS calls. No positions in other stocks mentioned.

May 6 2010

The Market Goes Crazy

The market went crazy again today. Some blame the shenanigans that happened at Citi but I think this is just a panic we’re not going to have a V-shaped recovery. Employment numbers haven’t looked very good lately and even though corporate numbers are solid the market has burned out. You can only hear the same story so long.

What this does do is provide a great buying opportunity for some stocks that have reported good numbers but have taken the brunt of the fall. I’m looking at FSLR with a forward P/E of 15 and has beaten estimates as far back as I can find. SPWRA has a forward P/E of 7.2! Seriously? These dislocations won’t last forever.

I would stay away from retail right now. There’s still too much inventory in retail and until employment improves the sector will struggle.

Disclosure: The Mayor is long FSLR and SPWRA.