Back in late May I got a call from a local portfolio manager (Bob) asking for a technical opinion on BP PLC whose share price had torpedoed in reaction to the companies’ Deepwater Horizon Gulf oil spill. “Look Bill, at $41 the shares are cheap when you take into account the earnings multiple, the yield and the book value.”
Bob’s analysis is typical fundamental stuff that reasons falling stocks are a better buy than rising stocks because a falling stock is “cheaper” than a rising stock which is getting “expensive.” I advised against the purchase because the stock was falling faster relative to its industry peers Chevron Corporation and Exxon Mobil Corporation. I told Bob the market is clearly worried about the Gulf oil spill and that in many cases stocks will fall ahead of changes in the fundamentals which can lag the current reality.
To-day with BP trading in the 27 dollar range I have no interest in the stock because the Gulf oil spill is a crisis that may take generations to repair and the potential liabilities could wipe out the company – I think the stock could go to zero.
Now most technical analysts believe that for every negative event – there is an offsetting positive event somewhere else. So as investors we need to protect our portfolios by avoiding industries and sectors negatively impacted by the Gulf Crisis and to seek out the beneficiaries.
This is where I invite your opinion. I need to see the investing landscape ahead for the next 6 to 10 months. How will this crisis impact the U.S. economy, interest rates, food prices, energy prices, precious metals and base metals? What stock sectors will be impacted be it financial, consumer, technology, energy, materials, health care, utilities and industrials? Will we bet on inflation or deflation? Small caps or big caps? Is this bigger than the Greek crisis? Bigger than the 2007 – 2008 housing crisis? What about the transportation sector – how do we value the railroads? What about tourism and travel? Investing is not a spectator sport – what to do – your input please.
