by Richard Band | August 2, 2011 4:57 am
You can tell we’re getting very close to the final bottom of this three-month stock market pullback. What makes me so sure? Last week’s fizzle have unleashed swarms of doomsayers — and those dependable bottom-makers are strutting their stuff with quite a flourish right now.
My favorite headline yesterday, from a heavily trafficked financial Web site, wrapped the prevailing sentiment in one neat package. 5 TIPS TO SURVIVE THE COMING MARKET AXE MURDER, it screamed.
Is the author serious? If we were in October 2008, with the S&P down 42% year to date, I could understand such hysteria. But the market, as of Thursday night’s close, was still up 3.4% for the year — and down only 4.6% from its April 29 peak.
Never, in my 38 years as an investor, have I seen so many people willing to panic on so little hard evidence. Once the debt ceiling issue is resolved (probably sometime next week), stocks will soar. This is a time to “keep calm and carry on,” as the British used to say during World War II.
With the S&P 500 index back below our trigger point at 1322, I urge you to continue buying conservative mutual funds, especially Gabelli Equity Income (MUTF:GABEX); 800/422-3554, $1,000 minimum. This amazing no-load fund keeps mowing down the competition, handily beating both the S&P 500 and the average large-cap “blend” (growth plus value) fund over the past one, three and five-year periods.
What’s more, I expect GABEX to maintain its winning ways, because the fund — at only $2 billion of assets — still hasn’t reached a size where bloat could hinder performance. Available fee-free through leading discount brokers.
Among our individual stocks, there are so many attractive buys that it’s hard to single out just one. But if you’ve got to narrow it down to one pony, make it Oracle (NASDAQ:ORCL).
The world leader in software for large enterprises (businesses, governments, etc.), ORCL has topped Wall Street earnings forecasts seven quarters in a row. Profits touched a new all-time high in FY 2011 (ending May 31), and should easily post another record in the coming year.
Yet the stock is quoted at a modest 12.7X estimated year-ahead earnings, a whopping 50% discount to Oracle’s 15-year average P/E. “Gorilla” franchises seldom come so cheap.
Buy ORCL at $32 or less. I’m targeting a total return (price gain plus dividends) of 20%-25% in the next 12 months.
On a final note, Invesco Mortgage Capital (NYSE:IVR) reported Q2 earnings of 99 cents per share Thursday morning, right in line with the analyst consensus. My guess is that the weakness in the stock has little to do with IVR’s operating performance and a lot to do with the Washington circus, which has spooked a broad cross-section of bond and mortgage investors.
I’m projecting IVR will pay at least $3.90 per share of dividends this year, for an eye-popping yield of 19.8% at yesterday’s closing price. At that rate, we can afford to wait patiently for the share price to rebound. I’m confident it will.
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