After recently touching 5 year highs, the market may be heading towards overbought territory. According to S&P Capital IQ’s chief technical strategist, Mark Arbeter:
“These types of moves can get very overbought, but we think it’s best to just hold your nose, enjoy the heights, and wait for a series of negative divergences on the momentum charts… Many times, during strong advances, the peak in daily momentum is followed by a peak in prices weeks later. In addition, it seems that many are sitting on their hands waiting for a pullback, especially with the S&P 500 challenging the big round number of 1,500.”
Even completely ignoring charts and looking at fundamentals, it is not hard for me to notice that most of the stocks on my watch list have run up significantly just in the past couple of months. So should investors sit on their hands and wait for the elusive pullback, or possibly even sell? Or, should we listen to some advice from Ben Graham, who stated:
“The one principal that applies to nearly all these so-called “technical approaches” is that one should buy because a stock or the market has gone up and one should sell because it has declined. This is the exact opposite of sound business sense everywhere else, and it is most unlikely that it can lead to lasting success in Wall Street. In our own stock-market experience and observation, extending over 50 years, we have not known a single person who has consistently or lastingly made money by thus ‘following the market.’ We do not hesitate to declare that this approach is as fallacious as it is popular.”
Here are some companies that Mr. Market may be offering to us cheap- even as the volatile market seems to be moving up, up, and away.
Apple Inc. (NASDAQ:AAPL) isn’t rotting
I may be beating a dead horse here, but Apple really is cheap at todays prices. Even if Apple has shown some signs of slowing down, for it to trade at a forward P/E ratio of around only 9 is a little ridiculous. The stock has fallen from its high of around $705 rather quickly, and could be approaching a bottom. The company has also begun to pay a dividend, which offers investors a decent yield of around 2.4%, with plenty of potential to increase it going forward. Apple may have been pushed off as king of the market cap hill by Exxon Mobil Corporation (NYSE:XOM), but that doesn’t change the fact that the company has one of the most massive cash hordes in the market, non-existent debt, and extremely impressive free cash flow.
A key player in the mobile revolution is on sale
Heard of Gorilla Glass? You know, that stuff that is used to produce the screens of everything from iPhones, to the Galaxy line of Android devices, to the Nokia Corporation (NYSE:NOK) Lumia 920? The maker of Gorilla Glass, Corning Incorporated (NYSE:GLW) is another company, like Apple, that looks undervalued. Like Apple, the company is also stuck with a forward P/E of around 9. The company sports a higher dividend, however, of around 3%. The company holds around $3 billion in cash (net of debt) as well, and is relatively strong financially. The company generates most of its revenues from LCD display panels, which have seen slowing demand lately, but demand for Gorilla glass in smartphones and tablets (which should continue to grow) may provide this company with a new outlet for growth. Corning is also working on its new Willow glass, which is apparently thin and bendable enough to allow it to be curved in a deep arc without breaking. And one more fact I would like to note- the company is trading at a price to book ratio of only .83, which is something you don’t often see with a great company like Corning.
An attractively valued play for the recovery of the auto industry
Another stock that appears to be on the cheap side is Ford Motor Company (NYSE:F). The automaker has dropped in the last couple of days after an earnings report in which the company saw a 54% increase in operating income for the fourth quarter. Why all the bearishness? Europe seems to still be a problem, and the company saw a bigger than expected loss in the region. Still, selling off a good company that is extremely profitable overall is a little over-dramatic, especially after said company recently decided to double their dividend payout.
Investing in oil and natural gas at a discount
ConocoPhillips (NYSE:COP) also looks attractive at current valuations. The oil and gas company trades at a forward P/E ratio of 10.6, with a trailing P/E of only 7.5, which is a discount to peers such as ExxonMobil and Chevron Corporation (NYSE:CVX). Conoco also trumps its peers in the dividend category, offering investors an inflation beating 4.3% yield. The company also trades closer to its 52-week low than its high of $78.29. After spinning off its refining, chemical and transport businesses, the company has become more of a pure upstream company, and may be effected negatively if oil prices drop.
The bottom line
There are still deals left in the market, and usually even in an “overbought” market- investors just have to look. This list is meant to be more of a starting point for more research than a recommendation to buy certain stocks, but the above companies look very attractively priced at current levels. Finding solid companies at attractive valuations allows investors to worry less about the overall market and more on their long-term portfolio holdings. To leave off with another quote from the legendary Ben Graham:
“The individual investor should act consistently as an investor and not as a speculator. This means that he should be able to justify every purchase he makes and each price he pays by impersonal, objective reasoning that satisfies him that he is getting more than his money’s worth for his purchase.”
A wonderful company that can be bought at attractive levels is a wonderful company at an attractive level in almost any market condition.
All financial data was obtained from Yahoo Finance.
The article Don’t Miss These Deals Left Behind by the Rising Market originally appeared on Fool.com and is written by Joseph Harry.
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