Sometimes the Market Just Goes Nuts

Wow, what a terrible 1st half. My portfolio is in tatters as I am sure is true with many others out there. What to do? I wish I had the answer. I am staying the course, but it is certainly stomach-wrenching. I think it is important to stay diversified, with some $ in cash, some in bonds, some in stocks, some in international and some in commodities.

To be sure, some stocks are down for good reason. But looking at my portfolio, I see some that don't seem as bad as their stock price.

AEO - at $13.24, they are less than 10x projected Jan 09 earnings. Unless you believe recession will be extremely prolonged (granted a possibility) that seems cheap.

BBSI - at $11.71, they are more than 60% below their 52 week low. They have over $5 in cash and they expect to earn about 86 cents. They have strong seasoned management with extremely strong balance sheet.

BID - Sotheby's has a duo-opoloy and thus a moat in the auction business. Auctions have been pretty good this summer... there are still people with money in the ultra rich out there as bidders come from all over the world. But they are down from $61 to under $25. They expect to earn $2.37 this year.

ELOS - down to $14.94, from over $27. Owned by savvy investor Seth Klarman. They are one of the few companies out there that expects to see their earnings not drop. They also have an extremely strong balance sheet with almost $7 in cash per share. ELOS seems really, really cheap to me.

FTO - I know refiners are out of favor, but these guys are really best of breed and make money where no one else does. At $22.85 theyare more than 50% under their 52 week high. They expect to earn $2.30 this year, down from $4.29 last year. That still isn't too bad, and refining margins can increase.

HURC -They have dropped to $27.68. There is obviously great fear that worldwide economy is slowing down. But they expect to earn $3.58 in 2008, up from $3.24. And they have no debt. Like ELOS, given growth prospects, HURC seems super cheap.

IAR - truly a tragedy in my portfolio, I am surely biased but the $1.91 share price (down from over $30 last year) suggests the company has a high chance of bankruptcy. Granted, they do have way too much debt and likely need to try and find some way to lower their debt burden... but OTOH they are projected to make $2.70 this year... more than their share price. Maybe that number is wrong, but still $1.91 seems like a nutty price to me.

KSW - a very small company, this NYC contracting firm is at $4.72 and they have $2.80 in cash per share. They have a strong backlog and made about 60 cents per share in the past 12 months.

LCAV - another stock that has crashed and burned, down from $50 to $4.84. Yes times are bad and people are not getting eye surgery at the same rate. But the question is how long will that last? At $4.84, the market is basically saying it is going to get much worse. Perhaps that is true.

LRCX - this equipment manufacturer is down to $36.46 from over $60. Goldman and Credit Suisse both recently upgraded them, but to no avail.

MRX - down to 19.53 from $32. Like ELOS and HURC, analysts think they will be growing earnings (a rare breed) in this tough environment. They have a staggering $13 in cash per share, though I expect they just spent some of that in buying a private firm. They seem like a strong buy, though admittedly they sell a discretionary product like LCAV.

ODP - at $10.84, Joel Greenblatt was buying at $17. I suspect even he can be wrong. But I like having his brainpower on my side.

PRLS - another cash rich small firm, they trade at $1.77 and have $3.10 per share in cash. That just doesn't make any sense whatsoever to me. I guess I'll just wait and find out why. Heck, I might cash in my retirement account and just buy them lock, stock and barrel.

TRID - they were actually profiled today in Barrons ([$$] The Timing Is Right for Trident Shares). The article basically says they trade at $3.73 yet have $4.50 in cash per share. Sound familiar? Sounds to me like the market is nuts.

VALU - admittedly there is not a more boring company in the universe than value. But in part that is the beauty of the company and it is nonsensical for them to trade at $31.75, down from a high of $56. Clean balance sheet, cash on hand, 33% ROE and steady growth. Go figure. People must just need to sell something to meet margin calls.

Okay, I have vented enough. It is possible the stocks will go down another 20%, no one can predict the nuttiness of the markets. But sooner or later, someone with deep pockets and large cajones will come along and buy some of these companies and pocket a lot of moolah. Where did all the private equity go?