Investing Club: It's traders vs. investors — and investors like us are here to fight, not flee
That's how I feel about the instant negative reaction to Best Buy 's quarterly numbers the other day and subsequent vindication, as well as the double-digit percentage drop in the stock of Dick's Sporting Goods after earnings versus Wednesday's nearly 10% increase at the close.
Quite a trough to peak type of day. It's not just retail. We saw a similar instantly wrong reaction in the stock of Toll Brothers after its breathtakingly strong earnings report. Here you saw a premier homebuilder's stock looking down big, a verdict overturned by investors no doubt cheered by a strong forecast, even in the face of multiple, further Federal Reserve interest rate hikes — something that you have to feel is even more certain of after the afternoon release of the hawkish minutes from the central bank's May policy meeting. What do all three of these companies have in common? Ridiculously low price-to-earnings multiples out one to two years. Best Buy comes in at about 8 times the next 12 month earnings estimates. Dick's and Toll are at 5.6 and 4 times forward earnings, respectively, according to FactSet. These are multiples that are saying one thing: We are going to have one doozy of a recession. But what if "doozy" can be taken off the table? As I go through these quarters, I see domestic companies getting giant haircuts. I see international companies, like Club holdings Cisco Systems and now Nvidia , getting buzz saw cuts from China and Russia. The commonality here: your stock will either be hit by the Fed or by China's strict Covid lockdown or by the Russia's Ukraine war — one, two, maybe even the trifecta. Now the instant rebounds we saw I think reflect the notion that it is worth the risk not that we will avoid recession — that's not even possible or we would not get single-digit multiples — but that we will avoid the "doozy." Your equity can be protected if your company makes things or does stuff and returns capital to shareholders via dividends, buybacks or both, while also selling at reasonable prices. But the protection is more like that of two vaccine shots: You can still get omicron but you're less likely to end up in the hospital. For now, though a simple judgment can be made: The traders' instinct are the wrong ones. They see degradation where investors see obvious short-term impairment. We continue to believe that it is worth taking the two shots and staying in rather than fleeing. We wish for a booster but don't have one yet. Stay the course with those companies that fit our descriptive. Even Nvidia gives you a buyback. Avoid the others. Lose less than the other guy until the bear is declawed and then make more money in a few days than you lost in months. That's how it has been. That's how I think it will be. As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Please follow us on Google to support us United States Latest News, United States Headlines
Similar News:You can also read news stories similar to this one that we have collected from other news sources.
Stocks surge thanks to big rally for JPMorgan Chase and other banksFellow financials Goldman Sachs, American Express and Visa were among the other big winners in the Dow Monday.
Read more »
CTV: The Next Major Investment Opportunity in StreamingNew VIP+ Analysis: Perhaps it’s time for investors to ditch the streaming services and instead put money to work in the distributors.
Read more »
Russia is now exposed to a historic debt default: Here's what happens nextThe U.S. has announced that it will not extend an exemption permitting Moscow to pay foreign debt to American investors in U.S. dollars, potentially forcing Russia into default.
Read more »
Here’s the signal for investors from the deep pessimism of Bill Ackman and George SorosThe editor of the MacroTourist newsletter sees a possible short-term bottom amid thick-as-fog bearishness out there.
Read more »
Dividend stocks have trounced the market this year. Here are 15 high-yield stocks expected to raise payouts the most through 2024Investors have favored companies with healthy cash flows as the central bank dials back stimulus.
Read more »
Podcast: Anger as Terra Revived, Bored Ape in TV Show Stolen, Crypto Exec Vows to Stop Trump | CoinMarketCapOn today's CoinMarketRecap podcast with ConnorSephton, all the latest on Do Kwon's plans to revive the Terra blockchain on Friday 🚨
Read more »