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Warren Buffett Isn't Excited About Buying Stocks Right Now, Should You Be?

September 23, 2013 | About:

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Dividend Mantra
Trying to retire by 40 by investing in dividend growth stocks and living frugally, valuing time over money.

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SeaBud premium member - 6 months ago
Excellent overview of the investing landscape. I agree on the market as a whole, bonds and real estate. There are stocks that represent reasonable value: energy (Chevron, XOM etc) based on valuation, including dividends. A few technology stocks may present reasonable value - Oracle (though it has run up) and especially Intel (if you believe it is a chip company and not a "Wintel" slave. Maybe IBM too. Finally, some European shares (especially banks like SAN and IRE) and US financials are still reasonable (WFC at 11.4 P/E is not bad). The question is with the broader market being pricey do you wait for an overall correction to hit these undervalued shares hard?
Vgm - 6 months ago
Thanks DM. A timely subject for debate. I think most would see the markets as fairly valued at present. But they're not overextended as Buffett also points out. I'm holding what I bought over the past few years, even those which have appreciated substantially.

I agree in general with Seabud's comments. In energy, I think the nat gas space has several significantly undervalued names which have not participated in the bullrun of the past few years, only in part due to low nat gas pricing - SD is in turnaround mode after the departure of a questionable CEO; XCO has needed steering from Wilbur Ross and now looks stable; CHK has come up but from a distressed level caused by Aubrey-gate and if it can hit its target non-core disposals and reduced expenditures, it's arguably undervalued due to its exceptional assets. All three are bulging with bluechip value investor shareholders.

Also agree with financials. In the excellent recent Q&A with Bill Nygren on GF, he was asked about why he holds so many financial stocks. Here's his answer:

"We think financials are very cheap. An interesting stat I saw recently showed that the price/book for financials was 20% lower than the price/book for utilities, despite currently earning the same ROE. Plus, we consider current financials earnings to still be depressed because of legacy home mortgage losses and legal expenses. One thing many investors fear is that new regulations will make financials much more like electric utilities. It appears to us that the market has more than priced in that risk already. Another fear many investors have is that in a slow growth economy with little lending demand, growth will be hard to come by for this industry. We aren’t certain that robust growth should be ruled out as a possibility, but if the economy only has tepid growth, we believe financials should be able to return almost all their income to shareholders in dividends and share repurchase."

As another value investor remarked recently: The biggest risk with financials might be getting out too soon.

Thanks again for the stimulation.

Long CHK, XCO, SD, BAC, Bank of Ireland, Lloyds Bank
Vgm - 6 months ago
Further to Bill Nygren's comment on financials above, a related question was asked about how the taper might affect financials in particular, going forward. Here's the Q and A:

"Q: With the Fed tapering probably happening in a few months, what do you think will be the effect on the financial sector's stocks?

A: We are bottom-up investors, meaning we spend almost all our analytic time examining individual companies as opposed to trying to forecast macro factors. My first reaction is that I’m not certain that tapering will be as important to the markets as has been suggested by the financial media. The Fed has been an active buyer of bonds in about the same magnitude as the government has been deficit spending. Since the deficit is now declining, it seems to me that the Fed needs to lessen its purchases to not increase the government’s net impact on the bond market. More specifically to financial stocks, I believe that because the industry has become less levered and has shortened the duration of its assets, the group would likely see earnings rise if rates increased. With financial P/Es being so far below the market multiple, higher EPS may allow the group to increase in price even as rates also rise."

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