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My year-end stock buying guide
For those itchy to buy, use caution and look at stocks that are 10% or more off their highs for the year.
By James B. Stewart
With the Nasdaq's ($COMPX) more than 1% decline of last week, we seem to be in another of those mini-corrections that periodically have rippled the surface of the bull market. I can tell that some people who are sitting on cash, waiting for one of the 10% declines that I use to signal a buying opportunity, are getting an itchy finger on the "buy" trigger.
It's true that after three years in which buying opportunities presented themselves with dispiriting regularity, I haven't been able to give you a solid buy signal since last March, which is now nearly nine months in the past. Nor can I now. A 1% decline is virtually meaningless, and it's only in the context of this year's suddenly frothy atmosphere that it would even merit any attention.
Is a correction coming?
I'm confident that another buying opportunity will arise -- indeed, I'm certain. They always come eventually. But for those of you whose cash positions have now risen above your targeted allocation and feel you can't wait to buy something, I can acknowledge that at the very least you are not buying at a market pinnacle. And the stock market probably will go higher before we get a real correction: The median duration for Nasdaq advances since 1979 has been 12.38 months, which would take us to April 2004.
If you're careful, you can at least buy stocks now that are 10% or more off their highs for the year. This offers you some downside protection, though I must warn you that when the broad market really swoons, these stocks are still likely to decline with it. In this environment, you don't want to buy broad-based index funds, as I recommended last year when just about everything was beaten down. But compared with the list of stocks hitting new highs last week -- more than 200 on the New York Stock Exchange and nearly 70 on Nasdaq -- there are some relative bargains.
Buys for those who cant wait
Let's take a look at a few of the stocks I've mentioned positively in recent columns. - Texas Instruments (TXN, news, msgs), maker of the digital light processing technology that so intrigued me, is at $28.50, down more than 10% from its 52-week high of $31.67.
- palmOne (PLMO, news, msgs), (formerly Palm) maker of the Handspring Treo, now available for use on a variety of wireless carriers, is way off its high, at $14.50, after hitting a high of $19, adjusted for the recent spin-off of PalmSource (PSRC, news, msgs). PalmSource, which makes money by licensing the Palm operating system, also is down sharply, to $21.50 from a high of more than double that. These stocks actually are beginning to move into bargain territory.
- Corning (GLW, news, msgs), maker of those glamorous flat TV screens that everybody wants, has dropped to $10.33, nearly 20% off its high of $12.34.
Lower-priced retailers
And many of the retailers I've mentioned have been pummeled, in part because of the weekend's big snowstorm in the Northeast. - Sears (S, news, msgs) was near $47, a hefty 15% off its high of $56.
- Wal-Mart (WMT, news, msgs) was at $53, down more than 10% from its high of $60.
- Best Buy (BBY, news, msgs): I hope you heeded my warning on Best Buy, which was really battered last week, dropping 15% from its high of nearly $63. It still trades at a stratospheric 113 price/earnings ratio, so I still wouldn't be tempted.
And finally . . .
Then there's Sun Microsystems (SUNW, news, msgs), which was at $3.55 when I last recommended it in October (and bought some call options). Just after I said the news couldn't get any worse for Sun, the company did make a series of generally positive announcements, and the stock has climbed to $4.35, a healthy 44% gain in just six weeks. (The options have fared even better). This is no longer a screaming bargain by my standards, but the stock is still well off its 52-week high of $5.64.
Finally, let me mention Samsung, the Korean manufacturer of the new high-definition TV set I've been enjoying so much. Although Samsung doesn't trade on American exchanges, a friend of mine in Los Angeles pointed out that Samsung constitutes 25% of the iShares MSCI Korea Index fund (EWY, news, msgs), an exchange-traded fund. So this is a way to indirectly invest in Samsung. The Korea Fund currently trades at $23.80, just below its recent 52-week high of $25.49, so it doesn't yet meet my criteria for a bargain.
Happy bargain hunting. Just remember not to complain that you're out of buying power when a real opportunity comes along.
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