Does it seem like you’re reading the same financial magazine and newspaper articles year after year with the same reheated and rehashed patter?
Here’s a few snatches from a Fortune Magazine article published on December 26th 2005. It even had one of those “Built To Last – 10 Sturdy Stocks for blah blah blah…” titles on it. I don’t mean to pick on Fortune, it could just as easily have been SmartMoney or whatever the other ones are called. TheStreet.com is still doing this nonsense day in, day out but online – amazing.
Anyway, read these little snatches and tell me they couldn’t be repeated verbatim in any article published this morning…
In a recent letter to investors, Legg Mason fund manager Bill Miller ticked off the positives: “The economy is strong, balance sheets are as liquid as they have ever been, profit margins and return on equity are hovering near all-time highs, earnings are growing double-digit, companies are buying back stock in record amounts, mergers and acquisitions are happening at nice premiums to prevailing prices.” To Miller, the conclusion is obvious: “I think the market is going up.”
Of course, a classic litany of perma-bullishness from Bill Miller. OK, check that one off the list.
Yet there are plenty of reasons to be pessimistic as well. The economic landscape includes an energy shock, a cooling housing market, rising inflation…
Ah yes, same as it ever was. And then?
Confused? Given the mixed signals, that’s understandable. It’s also why the stocks we’re recommending for 2006 don’t depend on a rousing economy or a rising-tide stock market. After reviewing the latest research and interviewing dozens of analysts and money managers, we trained our sights on ten moderate-P/E stocks positioned to benefit from secular, not cyclical, trends…
Right, that old chestnut. As if anyone’s longs ever work in a cyclical downturn. You know what the lowest-PE, sturdiest, highest dividend paying group was circa 2006-2007 by the way?
Within this list of Fortune’s “10 Sturdy Stocks”, you’ll be interested to know that both Citigroup at $50 and Washington Mutual at $42 feature prominently. Within two years of its being published, both names were well on their way to zero. Actual zero, not cut in half or by 2/3rds but ZERO.
Here’s the WaMu analysis from Oakmark’s Bill Nygren (he also appears in every single one of these “value stock” articles, gang):
You can’t argue with the numbers. The stock sells for just 11 times trailing earnings, well below the multiple of the S&P 500. Profits are projected to grow at an above-average rate of 10% a year for the foreseeable future. And the dividend yield, at 4.7%, beats the yield on a ten-year government bond. “It offers the best of all possible worlds,” says Nygren.
Right, but instead of “it offers the best of all possible worlds” Nygren should have said something more like “this f***ing stock will crush you and the bones in your hands and feet. It will be responsible for hundreds of thousands of lost jobs, homes and marriages before its done. Washington Mutual is a wrecking ball with a plutonium core and its outside is studded with razor-sharp, AIDS-infected sharks’ teeth.” Or something to that effect.
If you feel like you keep reading the same article again and again, well, that’s because you are.