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WSJ: Are There Any Cheap Stocks Left?

August 27, 2009 | About:

The stock market has run up so much so fast, leaving many people especially people frequent this site wonder what else is there to buy. Today, WSJ has a illuminating article entitled "Are There Any Cheap Stocks Left?".

According to the article, One can use Societe Generale's screen that were heavily influenced by Benjamin Graham, the famous father of value investing, to identify stocks that are cheap. The screen look for shares where the earnings yield is at least twice that of top-rated corporate bonds, and where the dividend yield is at least two-thirds of the bond yield. Right now that means a historic price-to-earnings ratio of less than 9.4 or so, and a dividend yield of more than 3.55%, total debt less than two-thirds of tangible book value, and shares prices less than 16.5 times their so-called "cyclically adjusted" price-to-earnings ratio, also known as the Graham and Dodd PE. If you do the screen, only three US stocks in the MSCI World Index will show up, and they are: Oil major Chevron (CVX), pharmaceuticals giant Merck (MRK) , and contract oil and gas drilling company Patterson-UTI (PTEN).

Read the complete article with wsj.com.

Rating: 3.3/5 (4 votes)

Comments

kfh227
Kfh227 premium member - 5 years ago
MRK isn't shocking.

Drug companies are among the most undervalued ones out there. Alot of the irrationality is gone. Bargains are hard to come by.
DaveinHackensack
DaveinHackensack - 5 years ago
"Alot of the irrationality is gone"

More likely, a lot of the irrationality has shifted to the bulls.
Dr. Paul Price
Dr. Paul Price premium member - 5 years ago
"More likely, a lot of the irrationality has shifted to the bulls."

......................................................................................DaveinHackensack


Said by a man who, admittedly, didn't put money to work at the bottom.
DaveinHackensack
DaveinHackensack - 5 years ago
Said by a man who, admittedly, didn't put money to work at the bottom.

That's not entirely true, so I'll clarify. I did invest a small amount (with modest success) in a penny ante arbitrage idea near that cyclical bottom, and I also added a little more to a stock I've mentioned here previously (AYSI.OB) near that cyclical bottom as well (when it was at about 23 cents per share). But I had been mostly fully invested (unhedged and long-only, unfortunately) since March 2008, the previous time you said it was a GREAT time to buy, so I didn't have much more money to put to work in March 2009. I imagine most retail investors were in the same unfortunate situation. And, as I mentioned to you elsewhere previously, I was holding onto most of my remaining cash because it was earmarked for investment in my business. I have freed up more cash since then, but that remains the case today.

Perhaps you sold all of your stocks and went short before the crash last year though, so you had a lot of dry powder to put to work at the beginning of this year. If you wrote a post announcing that last year, I must have missed it though. Frankly, I can't recall ever reading a non-bullish post by you. You were bullish last March, this March, etc. You were right this March at least, so congratulations on that.

Dr. Paul Price
Dr. Paul Price premium member - 5 years ago
Dave,

If you'll think baclk a bit you'll remember I'd told you and others here previously that I went to 100% cash for the first time in 32 years last Fall. I didn't get out at the top but I was completely liquid from September through just after Thanksgiving 2008.

I sensed the deteriorating conditions and didn't make ANY postings on Gurufocus or elsewhere from early July 2008 right through November 26th when I started posting regularly again. Doubter's can check it out to verify my statement. I made NOT ONE recommendation from July 2, 2008 through Nov. 26, 2008. [The only July 2008 write-up turned out to a great one - Tractor Supply (TSCO) which went way up even during last fall's meltdown.]

Unlike Commodity, I don't enjoy spreading negativity, so I just 'retired' and sat on my cash in that intirim period. That turned out to be a good time to be OUT of the market.

Unlike almost everybody else, I was extremenly positive from November 26 right through the present time. While my accounts were down over 20% at the March 9th low my main account (where I do exactly the trades I describe here and on www.BeatingBuffett.com is up 91.7% YTD as of today. I bought more shares and sold more puts daily during that February - March final market swoon.

I did remember your 'penny ante' arbitrage play but that was for a fw hundred dollars and not meaningful in terms of real investing.

My view is that anyone who didn't get back in during that late November 2008 - March 2009 time frame missed perhaps the greatest buys of our lifetimes.

I gave out a lot of spectacular picks in the past 9 months yet I've had probably 95% negative

comments from the GuruFocus crowd. Go figure.
kfh227
Kfh227 premium member - 5 years ago
DaveinHackensack Wrote:

-------------------------------------------------------

> "Alot of the irrationality is gone"

>

> More likely, a lot of the irrationality has

> shifted to the bulls.

>

>

I'd say alot of stocks are fairly valued. Far from an irrationally bullish sentient.

Dow 14,000 was irrationally bullish while Dow 7000 was irrationally bearish.

What animal is between a bull and bear? What pushes sideways? Mule? It's kind of a dragger, not a pusher, but close enough. I officially am calling the current market mulish!

Evan
Evan - 5 years ago
"I gave out a lot of spectacular picks in the past 9 months yet I've had probably 90% negative

comments from the GuruFocus crowd. Go figure."

Thats because probably 90% of your posts have been political, and completely off base.
DaveinHackensack
DaveinHackensack - 5 years ago
Paul,

If you went 100% to cash last September, that was a great call. You didn't mention it here at the time though. Anyone who listened to what you actually wrote here last year would still have been long stocks when the crash hit. Consequently, they would have had little to no money to put to work when you turned bullish again at the end of November. Given that history, why give people a hard time for not investing cash they didn't have after the crash?
kfh227
Kfh227 premium member - 5 years ago
USG has a $1.5B market cap.

I jsut started a thread on it.
Dr. Paul Price
Dr. Paul Price premium member - 5 years ago
Dave,

I didn't write anything here on Gurufocus from July 2, 2008 to Nov. 26, 2008 so you're right, I didn't spoon feed GuruFocus readers my opinion.

Based on the feedback I got I didn't think many people were acting on my recommendations anyway.

None of that changes the fact that anyone who sat on cash between late 2008 and early 2009 "waiting for a better economy" missed a spectacular chance to buy great companies at absurd low prices.

Those who had money on the sidelines but didn't commit remind me of that famous line...

"An economist is a person who sees something work in practice and then wonders whether it would work in theory."
Amit Chokshi
Amit Chokshi - 5 years ago
nobody acted on your recs cause they are all the same, naked straddles where you can lose more than you invested. most of the longs i mentioned have gone up 100% or more like BARE or ANN where the most you could have lost was your initial investment. Every single one of your recommendations are based on an option strat, not the underlying co. You frankly waste time with putting out the historical figures cause all u're doing is chasing the premiums from short straddle. this strategy would have made anyone bankrupt in 2008 but keep up the recs. What's next, HD why not? Why not PLCN next? who cares.

Dr. Paul Price
Dr. Paul Price premium member - 5 years ago
nobody acted on your recs..

Dizzy,

I acted on all of those that I wrote up and my account is up 88.64% YTD. If others here didn't follow my suggestions they missed the chance to make huge profits.

I looked and looked through all the old postings here and couldn;t find even one clear buy recommnedatuon from you anywhere. There were a couple of XYZ and RST "might look interesting" type mentions but those are worthless fluff. If they go up you take credit. If they go down you say they were not really recommended - just "potentially interesting".

Contrary to your assertion I did write up quite a few stocks that did not even offer options and they have also worked out extremely well.

My full history of write-ups is available for all to see at www.BeatingBuffett.com . Where can we find your track record?

The buy/write combinations you criticized so loudly have made me tons of money. When will I get your admission that YOU were wrong. In investing, the only true measure of success or failure is your actual profit or loss.
buffetteer17
Buffetteer17 premium member - 5 years ago
"In investing, the only true measure of success or failure is your actual profit or loss." In the very long run this is certainly true. We've beaten this process versus results horse to hambuger meat, but I can't resist telling one one parable.

There was once a husband-wife bridge team of which the husband was the weaker player. At a duplicate bridge tournament, the husband bid for a grand slam. As the hand progressed, the husband was taking all the tricks, but his wife was scowling at him. In the end, he made the grand slam. He turned to his wife and asked what was the problem, he made the bid, right? His wife's reply: "If you hand played the hand correctly, you would have lost."
Amit Chokshi
Amit Chokshi - 5 years ago
Stockdoc, I am up over 100% this year with a portfolio that's been net long 40%-60%. You can indeed find my fund's performance through July online here http://online.barrons.com/public/page/9_0210-hedgefundperformance_july-hedgefundperformance.html but I won't say the specific fund publicly since I actually have to follow the law, can't actually advertise or anything since it is a dink limited partnership (but Barron's and other dbs reserve the right to do so for index purposes, funny how that works). A few people here know the name of my fund cause they've just asked re their own fund creation efforts and I've had no problem telling them as that's not construed as a blind solicitation (esp when you're in CT and have regulators that are pretty serious given how many funds are here) but the bottom line is you are up 88% when you risked losing more than your initial investment.

Keep in mind that barron's index is as of July 09 (the reported figures on Barron's), August will be out prob sometime this month when I'll be reported to be up over 100%. I have made it clear that I have no inclination to write out a long post highlighting any investment idea here. I do this everyday and write up pros/cons of every holding or potential holding in my fund, basically when you've spent 5-6 years on wall st, have your mba and cfa, and invest for a living, the last thing someone would want to do is type up some idea here. I really don't need others to review my ideas nor do most people here. Rather than spend a lot of time on this board in recent months I spent most of it researching holdings and managing risk for my partners.

Some may want to get some feedback and post an idea, you're really the only one here through some sort of insecurity/inferiority complex that is compelled to post all these investment ideas (when they really are the same thing, the returns are driven by the option strat not the underlying stock or co) and track yourself. After all, you're the only person here that rates his own posts (always five stars) , expected of a bratty 5 y/o but then again perhaps your political persuasions to guys like Beck lead to that insecure and infantile behavior. That's what's funny, you say all that matters is your P&L which is fine but you seem hell bent to prove to this online community how great you are.

Have you ever calculated the downside of a stock rec when you do a naked straddle or even risk adjusted returns relative to other strategies? Have you calculated what the returns would be if you just went long the stock and didn't sell the options? You might say go long a $20 stock, sell long dated puts and options to chase premiums and have say $10 of premiums IF you hold the stock and options for 18 months but in just the past 6-7 months stocks have gone up over 100% so on a risk adjusted basis you lock in a 50% gain over 18 months but missed out on an easy double over 6 months where the max loss on your strategy is over 100% and the max loss on just oging long is 100%. I've seen your posts where you recommend buying the stock at say $20 and selling a long dated call at that strike price. So what's the point of any analysis of the co if you say how good this co is but then recommend capping the upside at the price you paid? Plus, what's really pathetic is that you are always recommending this strategy with LEAPS. LEAPS tend to have the LOWEST volatility meaning they are the lower valued options on a volatility adj basis. This is why Joel Greenblatt has loved LEAPS because he as anyone familiar with options knows that outside of intrinsic value, volatility is a key driver in option valuations so he's rather go long these since they are often mispriced due to low vol. In contrast you chase these premiums and recommend selling them, selling a security that is most often underpriced. Plus with the VIX so low people are underpricing options.

Keep recommending the same old naked straddle strategy though if it makes you happy and keep up the track record. I think DSW would be a good one for you to recommend next, u can have a post like "This Shoe Fits" and then post the five year historicals (as if they matter in your "analysis") and then say buy the stock at $14, sell Jan 11 calls at at $15 for $3, sell Jan 11 puts at $15 strike for $3.50, and if DSW doesn't move you've made $6.50 in option prem on $14 stock and then come back and brag how that rec did so well.

Dr. Paul Price
Dr. Paul Price premium member - 5 years ago
Dizzy,

My fund is up over 100% BUT I CAN"T TELL YOU WHICH FUND IT IS.

My stocks are up huge but I never tell you what they are in advance.

More totally useless crap from Dizzy.

alanb9
Alanb9 premium member - 5 years ago
just curious Dizzy, is your fund listed under the equity long/short section of Barrons?

Can you confirm what letter the fund name begins with?

L?

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