Goldman Sachs, which was at a 52 week high on October 9th at $239.70 slid 4.46% to $217.69 on Friday. Goldman, which has had a great run from a 52 week low in August couldn’t keep the momentum going last week and has been declining ever since hitting the new high. Seeing the writing on the wall, I sold my shares at $235 last week (if you had been a subscriber you would have had advance notice of this trade) .
Wells Fargo also reported lowered earnings due to mortgage problems as did E*Trade earlier this week.
Assuming you have a diversified portfolio with one financial, one energy, one retail, one consumer staple, one tech and one speculative stock, what do you do in times like these?
I for one, set levels I like to buy these stocks at by considering the growth (remember I talk about value investing on this blog), the time of year and the trends the market seems to be following. By focusing on growth you can trim down the winners from the losers very easily. A company that has no growth prospects isn’t as likely to move as much as one with higher growth for their sector.
Unfortunately, the financial stocks and hedge funds that trade them are controlling the overall market right now. In that case you need to find stocks that are defensive, that is to say stocks that can weather these kinds of ups and downs better than others. I’ve already mentioned in a previous post a few of these defensive stocks based on the upcomming holiday season.
I still like Goldman Sachs(GS) but I am going to let it come in. I have a low target right now of 215 for monday but I’d like to see it at 210 or 200 before I pull the trigger again. GS is a great stock because it’s got a low PE considering the growth if you compare it to something like Apple, Inc. (AAPL) which is of course a tech stock and commands a much higher multiple…but is also a juggernaut in its own right.
Two stocks setting 52 week highs today include Coca Cola (KO) and Google (GOOG). Coca Cola has been on a tear since late august where I picked it up at $52.11. KO closed the day at $58.76 on 12 million shares volume. KO is fair valued right here and pays a decent dividend so it’s a great long term investment.
Google, charging full steam ahead closed at $644.71 also setting a new 52 week high in intraday trading at $658.49. Why does everyone keep talking about Google? Basically, even though GOOG is a $600.00 stock, it’s really only trading like a $60 stock. Divide the PE and the price by 10 and you have a $60 stock trading at only 5 times earnings! Not only is Google going to $700, it’s going to blow that number away and I think it goes to $740.00. Here’s how I arrive at that number. Google has 29% growth and a current PE Of 50. That signals a buy right here right now because if I double the growth in terms of PE you get 58. That number multiplied by the current EPS gives you $740, where I think you sell it and wait for a pullback. Google is going to hit $700, you can bank on that…so my estimate is high but with good reason. There’s no reason Google can’t go as high as $1000.00 a share. It won’t happen this year, or next but in the next 5 years it’s entirely possible if their growth continues year over year.
So even though we have disappointing numbers from the financials, there are plenty of places to invest still. You just have to do a little digging and a little homework.
