Saturday, June 10, 2017

Scraping The Barrel

Scraping The Barrel

One thing is for sure, as the markets spiral upwards, individual stocks begin to look less appealing.  To me, I see a lot of similarities between this market and the bubble of 1998-2000 (yes I am that old). But I also see critical differences.

There are stocks/companies that have valuation that defy all logic, like SNAP, STMP or P. I could list many more. And the "unicorns" such as Uber and Pintrest - no way they are worth $20b.  So very similar to dotcom bubble, but more social media and "disruptors" being the catch phrases now.

But I also see differences.  In the Dotcom bubble, it was Old Economy against New Economy.  And many, many Old Economy stocks were tossed in the gutter like cigar butts.  The MFI system was great at finding those stocks.  And my hypothesis is that was why MFI did reasonably well (per the Little Book That Beats The Market) in the bear market years of 2000-02.

Today, I see very very few stocks that are undervalued.  The bubble is not quite as crazy (recall Yahoo was north of $100),  but the search for yield has made cheap stock very very scarce. I think the best hopes are M&A acquirees.

I did run my "Formula" screen today.  Only 8 stocks qualified.  I think that is lowest number I remember. It is getting more and more difficult to even hit the 2.4% yield hurdle.

Ticker Market Cap Price Dividend Yield
BKE  874   17.90   1.00  5.6%
CSCO  156,787   31.37   1.16  3.7%
DIN  829   46.09   3.88  8.4%
GME  2,230   22.01   1.52  6.9%
GILD  84,563   64.70   2.08  3.2%
HPQ  29,963   17.80   0.53  3.0%
OMC  19,120   81.50   2.20  2.7%
PBI  2,834   15.21   0.75  4.9%

We will see if the list is any different in 3 weeks (if I were a betting man, we'll see some dividend decreases in this group in next 12 months).

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