After the Fall: Where to Put Your Money Now
Aug 5th 2011 1:45PM
Updated Aug 17th 2011 12:07PM
Investing is all about perspective. While all the headlines scream about doom, despair, and agony, there are plenty of investors who have a different read on the situation: They see promise, value and opportunity peeking out of the rubble left by this week's stock market shakeup.
Instead of sitting on the sidelines and rubbernecking, put your money to work for the future. To get you started, we asked 10 Motley Fool writers, analysts, and market watchers how they're deploying their investment dollars right now and what stocks, mutual funds, ETFs, and other opportunities investors should have on their radars right now.
Anders Bylund, a self-described nerdy growth-stock junkie, is going ga-ga for Google:
Over the last five years, online titan Google (GOOG) has grown sales, earnings, and operating cash flows at an annual clip of over 30% each. Yet the stock has only gained 10% a year, held back by fears of growing competition and a supposed One-Trick Pony Syndrome.
Lucky for you, share prices keep dropping to ridiculously affordable levels on a regular basis, and this is one of those buy-in windows.
I can't think of a single thing I'd rather do with excess cash today than stuff it into Google shares. We're talking about a company that turned the smartphone and GPS markets on their respective heads, invested in wind power and driverless cars, and is exploring new markets such as home entertainment systems and social networking. And I'm just scratching the surface here. Search-fueled advertising clicks may provide Big G's dominant melody, but we're hardly looking at a one-note Neil Young guitar solo.
Anders owns shares of Google.
Rick Aristotle Munarriz, envious opportunist, is looking forward to getting a cheap shot at a few recently hot IPOs:
Like most investors, I don't have access to IPOs before they hit the market. I don't manage a hot mutual fund. I didn't go to school with a bigwig underwriter. My lavish yacht is docked solely in my vivid imagination. However, a funny thing happens when stock prices begin cascading during a market downturn. Hot IPOs become busted IPOs.
Pandora (P) went public at $16, traded as high as $26, but the fast-growing -- though profitless -- music discovery site is now trading in the low teens. Similarly, shares of headphone maker Skullcandy (SKUL), dating website operator FriendFinder Network (FFN), Florida-based banker BankUnited (BKU), and Chinese social networking leader Renren (RENN) are all trading below their IPOs at the moment.
Many of them are trading low for a reason, but think about it: Here is your chance to buy into these companies for less than what institutional investors and underwriter school chums paid up for them as daring debutantes earlier this year. It's one way to help that imaginary yacht get closer to becoming real.
Jim Mueller loves to take advantage of other people's irrationality, and he's considering filling his portfolio's tank with some cheap black gold:
Yesterday's dramatic drop in crude oil prices, and the resulting drop in the share prices of companies all over the oil industry spectrum, give savvy investors another chance to profitably invest in this commodity:
- Oil giant ExxonMobil (XOM) dropped 5% and is down 13.3% from its recent high.
- Brazilian producer Petrobras (NYSE: PBR) fell 8.5% yesterday.
- Under-a-cloud driller Transocean (NYSE: RIG) fell a similar amount yesterday and is down 22% from its May high.
Yet the long-term earnings and cash-generating power of these companies haven't changed one iota, just because some people became afraid of the near-term future.
Oil is becoming harder both to find and extract. Petrobras' newest oil fields are at the bottom of the Atlantic Ocean, a far cry from the easy-to-access fields in the Middle East. It will take the skills of Transocean and other deepwater drillers to get it out. On the other side of the equation, demand is growing. We burn oil not only to drive or fly around, but also to generate electricity or heat. It's also a major input for the plastics and chemical industries. That combination means higher oil prices over the long term, which means these companies will make more money giving the world what it wants more of.
Don't let the daily fluctuations of a crazy market scare you away from this opportunity. In a few years, you'll be laughing all the way to the bank.
Jim owns shares of Exxon and Transocean.
Travis Hoium loves to make big bets when the market is bluffing. He's placing his chips on a few choice gambling stocks:
When the market starts to panic in any way, gambling stocks are some of the first stocks to be put through the ringer. Casino companies are generally highly leveraged with debt, and conventional wisdom would say that gaming tables will sit empty if there's not disposable income to dispose of. But conventional wisdom doesn't rule gambling in Asia, the one place I would be willing to bet on gambling today. When it comes to gambling on gaming stocks, Wynn Resorts (WYNN) has the odds stacked in its favor.
The new gambling hub of the world, Macau, grew gaming revenue 48.4% in July, despite a slow worldwide economy, and it will likely grow well over 40% for the year. With a limit on the number of competing casinos, that means more for all operators. Wynn tops competitors like Melco Crown (MPEL) and Las Vegas Sands (LVS) by virtue of its stronger balance sheet; it's also the only one of these companies to pay a dividend.
Rich Smith is proud to be a "heartless capitalist" (his words, not mine!). In more genteel terms he likes to zig when the market zags, and is getting ready for even more sagging:
When Mr. Market gets fearful, I get greedy. Right now, I've got a large chunk of my assets in cash, but I've been waiting for a chance to deploy those assets for maximum gain. The hissy fit Mr. Market threw on Thursday -- utterly out of proportion to any actual news we saw -- tells me the time is ripe to begin putting money to work.
I plan to begin moving funds from my bank account, where they've lain dormant collecting token annual interest for months, and using them to top off my discount brokerage account. If the market bounces today -- fine and dandy. The money will just sit in its new different basket until the next sell-off. If the market keeps falling, though, as I believe it will, then I'm going to take advantage of the panic. Yesterday, shares of Apple (AAPL) became 4% cheaper for no reason whatsoever. General Motors (GM) likewise lost 4% despite reporting blowout earnings. That's just crazy -- and I plan to profit as American markets sink deeper into madness.
Fool.com writer/editor and CFP Dan Caplinger recommends that investors take a holistic approach to the dip and scoop up shares of companies that add diversity to one's portfolio:
Now's a great time to invest in something new with your money. If you already have a good stock portfolio, consider investing in an area of the market you've never looked at before. For instance, metals stocks like Freeport-McMoRan Copper & Gold (FCX) got hit hard this week, but with long-term demand from emerging market countries, a temporary blip in the economy gives you a good buying opportunity.
Even if you've never invested before, household names like PepsiCo (PEP) and Johnson & Johnson (JNJ) pay great dividends and offer stability and value. If you've got all your money in a savings account earning nothing, stocks are cheaper than they've been in a long time
Uncertainty doesn't sit well with Motley Fool writer Cindy Johnson. This value-conscious investor likes companies that are safe bets in any economy:
For a company with an uncanny ability to weather an uncertain economy, look no further than IBM (IBM). It has extensive experience delivering impressive EPS growth with only lackluster revenue growth. That's compelling if the economy muddles along for years, as many experts expect. The company is currently benefiting from early investments in developing markets, business analytics, cloud computing, and smarter planet initiatives.
IBM also does a remarkable job of delivering value to shareholders. Over the last five years, its dividend has more than tripled, growing at an average annualized rate of 27%. That's cash you can live on, even if inflation heats up. From 2005 through 2010, EPS grew at an average annualized rate of 19% ... with unusually high quality of earnings. Management has a well-thought-out plan to grow EPS by at least 11% annualized through 2015-and a history of beating its plans. That should support continued strong dividend growth. The stock is trading at a reasonable 13.9 P/E ratio and yields 1.7%. For a value-conscious investor like me, IBM is a safe stock for any economy.
Resident economy watchdog Morgan Housel has a long-term time horizon and the temperament to go on vacation for a while and let his investments ride:
My investing style revolves around simplicity and diversification. If that sounds like you, too, I'd consider looking at some of the dividend-centric ETFs. Two I like are the SPDR S&P Dividend ETF (SDY), and the Vanguard Dividend Appreciation ETF (VIG).
Both funds select stocks with long track records of reliable dividend payouts and consistent dividend growth. Most of these are large-cap, multinational blue chip stocks with names you'd recognize. But both funds are fairly diverse, so there's no real need to track individual companies. It's more of a set-it-and-forget-it style.
Neither fund will shoot the lights out, but both should offer good returns for shareholders who have a long time horizon and the patience to accumulate steady dividends over time. After days like yesterday, an investor shouldn't ask for much more.
The stock market isn't the only place to put your dollars to work in this market. Motley Fool writer and fix-it girl Tierney Plumb recommends that future home sellers consider investing in improvements to increase their asking price down the road:
When it comes time to stick a for-sale sign in your front yard, deploying dollars into home-improvement projects is a smart investment. Considering that home prices in 20 major cities fell 4.5% year over year in May, according to S&P/Case-Shiller's late July report, potential sellers should consider some of these price tag-raising tactics.
Smaller-scale upgrades -- replacing an entry or garage door, minor kitchen remodeling or wood deck additions -- result in the most bang for your buck, according to Remodeling Magazine's most recent annual survey comparing the price of popular home improvement projects to their resale value.
Homeowners can score great deals on enhancement projects these days, thanks to cheap materials and many unemployed builders willing to take on jobs for less. Just be wary of improvements that will adversely affect a home's value, such as decreasing bedroom counts and making the house "unique" in some way, which may impact the sales price down the road.
Jonathan Berr hopes to strike it rich one day on "Antiques Roadshow." Until then, he'll daydream about what he would do with his millions – and float this investment idea for those who already have a fat balance in their accounts:
Some modern art and iconic collectibles have been known to hold their values better than stocks. However, investing in collectibles really is only recommended for the extremely wealthy. Consider that a painting by the Austrian painter Egon Schiele sold for $40 million at Christie's, almost double the previous record for the artist. A hat worn by Babe Ruth sold for $328,000 in 2008. That said, even if you can afford to acquire such treasures, consider the problem of liquidity: Finding buyers for this stuff is not easy. Still, we all can dream, right?
The Motley Fool has a disclosure policy that's a pleasant distraction for those who need a little something to calm their nerves today.