Thursday, March 6, 2008

Stay Defensive

Stocks continued to get pounded today as crude oil shot higher and nothing but negative economic data emerged. Some high quality companies are starting to look attractive, but now we have to ask what is attractive? You can say a stock looks cheap, but cheap relative to what? Last year? A stock's historical P/E can help you come up with a valuation in good markets or bad. But take Google or Apple. Their historical P/E won't tell you much. Google is too new, and the game has changed fro Apple. Because of the ipod and iphone, they are a completely different company than they were 10 years ago.

I continue to like resource stocks. Oil, water, and infrastructure stocks. It's not a great time to buy oil stocks as they haven't fallen as much as others because of crude oil's climb. National Oilwell Varco (NOV), Noble (NE), and Schlumberger (SLB) are all stocks I'd want to own long term. But you can wait for the price of oil to retreat, and these stocks will follow.

I'm pleased with the call I made on the Ultrashort Russell 2000 (TWM). It's gone up about 17% in 2 weeks, including almost 7% today. I continue to think the Russell will drop faster and more significant amounts than the Down and S&P, and it has.

Disclosure: Author owns NE, TWM.

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