Let’s start with the bad news: We just had the worst first half of a year in more than 50 years.
We are in a bear market.
Everyone is talking about a possible recession — and even the possibility that we might already be in one.
And a lot of people have lost a lot of money.
So, I understand if you think I’m crazy saying that now is actually a great time to buy stocks.
Look, I’m not a stick-my-head-in-the-sand kind of guy. I know full well what’s going on in the market, and I own stocks that have gotten hit hard. And I know that just because a stock is up today doesn’t mean it won’t be down again tomorrow.
But more importantly, I also know that superior companies with strong fundamentals are selling at deep discounts. The fact of the matter is investors tend to “knee-jerk” react during times of panic. In other words, investors sell first and ask questions later. They throw the baby out with the bath water, but astute investors can snap up shares of companies that are going to be much higher in the coming years for pennies on the dollar.
If someone offered you a new BMW at half price, you’d take it, right? Stocks are even better than that because cars lose their value as they get older. The right stocks, however, increase in value.
Isn’t the whole goal of investing to buy low and sell high?
Even if grabbing a rare bargain opportunity doesn’t do it for you, here are five more reasons smart investors are setting themselves up now for potentially big profits down the road:
1. We are not in an earnings recession. The economy may have contracted in the first quarter, but corporate earnings are not expected to shrink. According to the latest FactSet data, second-quarter earnings on the S&P 500 are estimated to grow 4.1%. That’s slower growth to be sure, but it is far from negative. Sales growth is expected to be 10.1%.
2. You can still find accelerating sales and earnings momentum. Many companies and even entire sectors are struggling in this slower economy, but not all. You can still find quality companies with accelerating sales and earnings. And because their stocks have been crushed in many cases, they are available at unusually low price-to-earnings (P/E) ratios that are sure to move back up to historical norms.
Valuations now are now just plain ridiculous. In some cases, stocks are going for under 10X forecasted earnings for large caps, and barely 4X forecasted earnings for some small caps. I’ve never seen valuations like this — ever!
3. The core rate of inflation may well have peaked four months ago. With all the talk of higher interest rates and a possible recession, folks don’t realize that the core rate of inflation (excluding food and energy) peaked back in March, at least so far. It decelerated in both April and May, and is expected to further decelerate into September.
4. Treasury bond yields may have also peaked. Early in 2022, the rapid rise in Treasury bond yields spooked the markets. Some of the biggest down days for stocks came on days when yields moved sharply higher. The 10-year Treasury yield more than doubled in the first half of the year, but yields have started to come back down of late, even with rising interest rates. This would be a good sign for stocks… and especially growth stocks that have taken the brunt of the selling.
5. The rest of the world is looking to the U.S. Thanks to a strong dollar (in part because of those higher interest rates) and a better ability to tackle both food and energy inflation due to vast natural resources, the U.S. is an oasis in the global market right now, filling it with more opportunities.
Many market pundits believe the stock market bottomed back on June 16. History would say they may well be right.
Our friends at Bespoke calculated that the S&P 500 has fallen more than 20% in the first half of the year eight times since World War II. It is up both six months and one-year later every single time, with the average six-month gain a solid 21.5%.
But whether the market bottomed in the first half of the year or not doesn’t matter. Bottoms are identified only in hindsight — and after the market has already bounced off them.
So, we need to focus instead on something much more concrete: great companies that are growing earnings and sales and are selling at unusually steep discounts.
That’s why now is a great time to buy stocks.
These great fundamentally superior growth stocks are likely to be a lot higher in the coming months and years. Even if they fall from current prices in the short term, the outsized long-term gains should dwarf any early disappointments.
I’m not the only one who sees the market this way. Legendary investor Whitney Tilson, dubbed “The Prophet” by CNBC for correctly predicting major market moves like… the dot-com collapse… the 2008 financial crisis… the bottom of the market after the 2008 crash on 60 Minutes — and much more.
We predict the nightmare of March 23, 2020, is about to repeat — but in a bizarre new way that could create a wave of millionaires on just a small investment if you’re willing to take advantage of the panic this year. You can read a FREE special report about our views by clicking here.