Sunday, October 26, 2008

The kid in the candy store

Top-down oriented investors seems to have significant concerns about the macroeconomic backdrop right now. On the other hand, many value and bottom-up oriented investors who were previously cautious on the market have either become more constructive on stocks or turned outright bullish. The list goes on: Warren Buffett, Jeremy Grantham, Ken Heebner, John Hussman, John Neff and return estimates based on the ValueLine Survey.

Putting on my bottom-up investor’s hat on, I can sympathize with the bullish assessment. Just for fun I ran a quick screen of low-priced beaten up financials with heavy insider buying and came up with a moderately sized list, which is shown below. It’s easy to see how some of the bottom-up managers are behaving like kids in a candy store. You don't see these kinds of values every day. The P/Es of these financials are low and they have had significant insider buying in the last six months and no insider sales, which is an indication of management confidence. In addition, other deep value screens are also showing long lists of stocks with good upside potential with solid asset value support.

Click for larger image

However, my inner top-down investor remains concerned that there is too much macro downside risk. The market is too dependent on policy response for me to sound the all-clear for the bulls.

Disclaimer: I don’t have a position in any of these stocks. You should not consider this as a recommendation to trade any of them. You are responsible for your own portfolio and you should do your own homework.


Mike C said...

Jeff Pierce?

YoungChuck said...

Do you have any evidence that supports insider buying as a buy signal for a stock. I have always found this metric lacking but have never ran any numbers on it. Yes, when ever I see something from Trimtabs I plug my ears. I would think with surviorship bias it would be difficult to test with easily available data. I also think this period will go down in history as when the most c-level execs got their equity wiped out or have been blown out by a margin calls. I am more of a top down guy also but have seen some excellent deep values in non-finacial companies the last few weeks.

Unknown said...

That fear will keep you from investing when there's "blood on the streets".

No one can call a bottom...all we can do is get the best deal we can. Is a stock with a PEG of 0.5 better than a stock with a Price to Cash of 0.5? I don't know the answer to either, but there are some stocks out there with metrics like that.

Unknown said...

Not only that...why are you looking at financials? That would be like saying, "Gee, military hardware stocks look good after 9/11, but let's look at the tech stocks that are still suffering from the dot com bust. Yep, the market still sucks."

Not only is the reasoning you use rather flawed, it would have made you miss some good opportunities in DoD related stocks in 2001-2.