Comments about this week

In approximately 96 hrs the US and Canadian stock markets gave back all the gains they made over the past year, despite the Bush administration's economic incentive package.

Things look bleak. The only markets that have done well in 2008 are the Ukraine and Brazil--- not the kind of markets most folks would be comfortable betting the farm on in the long run (although I wouldn't mind owning a Brazikrainian ETF).

If you go completely into cash, stagflation will eat into your holdings as your money becomes worth less and less.

If you go long/short as a hedging strategy, this adds complexity to your portfolio that most people are uncomfortable with. Note: if you are prepared to research this further and (like me) want to avoid investing on margin, have a look at the Horizon Beta Pro series of ETF funds. You can stay "long" your favourite strong, well capitalized equities currently on sale for the long term and still make money over the short/intermediate term as the stock market bottoms out with one of the Bear Plus funds giving roughly 200% of the S&P index (either US or CDN) returns if that market drops. Unfortunately, if the market rallies, you lose 200%; however, your long stocks should go up at least that amount if they are carefully chosen and somewhat diversified.

If you stay 100% in equities/bonds and stay long, buying more fundamentally strong equities on the way down to the market bottom, whenever and wherever that will be, you will need a strong stomach but I suspect you will have the best long term results.

Stocks that I am studying carefully and considering adding to or starting a position in over the next 8 weeks:

1. Cemex- CX. Big Cap with excellent Dividend and low payout ratio. Global and market leader with excellent management and admirable balance sheet. Leveraged into the infrastructure boom worldwide. Despite management's recent announcement that profits would EXCEED expectations for Q4, stock keeps dropping. I will consider myself lucky if I can get more in the low 20's (hoping for high teens.... but I'm not sure that even Mr. Market is that crazy)

2. Harley-Davidson HOG. Big Cap with moderate dividend low payout. Increasing global footprint and decent balance sheet. Big time insider buying (one officer bought $5 million worth of stock in November), guru buying (John Rogers bought approx $100 Million worth Dec 31) a large share buyback. Expect short to intermediate pain as company shakes out excess inventory and FCF/margins suffer accordingly. Adding more bought in the low 30's would make me happy.

3. American-Express AXP. Large cap Buffett stock with excellent management who anticipated the subprime debacle. Lowest exposure to low FICO clients of the big 3. Solid balance sheet, good dividend low payout ratio. Lowest P/E seen for many years. Large cash settlement in lawsuits v.s. VISA and M/C. Short term pain almost certain. I'll start a position when it hopefully hits the high 30's as more bad news comes in.

4. Seaboard SEB and Columbia Sportswear COLM. These two are well positioned global mid-caps with minimal-no debt, big time insider ownership and excellent management. I don't think SEB will drop much unless corn prices (to feed the hogs) spike and continue to squeeze margins. If it drops below $1350, I will buy more. COLM will likely drop further as it is dragged down by a hated retail sector. I would find it difficult to resist buying more at less than $30 if it gets there.

5. Moody's MCO. Another Buffett stock, part of a duopoly and plagued by a class action lawsuit it will handily win (again). Very well managed and global exposure. Short to intermediate pain that could drag out for as long as 5 years as the SIV/ABCP detritus washes up to the surface should make it an even more attractive long term opportunity.

6. DELL. Increasing market share and back to good management. Extremely low client/investor expectations--- easy to beat. Very strong balance sheet particularly FCF and debt (virtually none). New product pipeline finally formulating. If the price hits the teens, I will definitely add to my position.

7. BBSI. See my analysis in a previous post. Although the management and financial strength of this company are very impressive, this stock represents the riskiest investment of all the equities mentioned in this post. Why? With a market cap under 200 million, it's a very small cap company and it does not have global exposure. In fact the US states it is most active in (California and Nevada) are being hit very hard by the sub prime fallout. Micro cap companies can become insolvent in wink of an eye and banks are not happy to lend to anybody these days, let alone a small company. Fortunately, big insider ownership, no debt, good FCF and a dividend make the stock very attractive. What also makes it very attractive to me is the superb business plan and the upside potential reward down the line IF the company can survive the downturn. I think it will but I'm guessing. If I can buy it at $15 or less, I will take a small position and add to it carefully.