When you get to 40-year extreme valuation levels it’s usually a good time to be positioning for a reversion to the mean. All the obvious bad news would appear to be in the prices.
Go with good quality, financially strong companies that are likely to survive and prosper even if things go badly on a macro-economic level in the near term.
Many of the stocks exhibiting these traits are now offered with low P/Es and relatively high yields. The main risk? Relative devaluation of the Euro against the $US. Euro/Dollar parity was predicted on the cover of Barrons this week which may be a classic contrary indicator.
Purchase candidates include both pure plays on Europe plus shares of international giants with significant European exposure.
Position: Long KELYA, MAN, MT, RDS.a, TOT, XOM, COP, CMI, WAG, ANF, SEE, SPLS, ITW, PEP, IBKR
Dr. Paul Price July 15, 2012
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