Sir Francis Bacon once said “history makes people wise.” What is history telling us about this market? With a little less than two months remaining in calendar year 2008, the market is still oversold. Modern day markets never finish a year down more than 18% and this year should be no different. With the ravages of double-digit inflation in the 1970s, the worst performance for the market was a loss of 17.27% in 1977.
After Black Monday in 1987 when the market crashed 22%, the yearly performance surprisingly ended positive at 2.26%. Then there was the nasty performance in 2002 when the market ended the year down 16.76%. Now that a cataclysmic repeat of the Great Depression has been taken off the table we should expect this market to end the year within range of other poor performances. The Dow began 2008 at 13,261; a 17% selloff brings us to 11,006. Here are eight fundamental reasons for a return to 11,000:
- Stimulus Part 2 is coming and it’s going to be large.
- Falling gasoline prices have brought much-needed relief to the consumer; OPEC has lost pricing power.
- No more playing politics with billionaire market volatility.
- U.S. financials are going to get a mark-to-market re classification just like they did in Europe.
- Record amounts of cash sits on the sideline.
- Strength in the U.S. dollar will spur foreign investment in U.S. equities,
- LIBOR improves weekly.
- The credit freeze actually helped to speed up the bottom in housing.
- Many corporate balance sheets are flush with cash.
This leads me to my list of cash-rich companies that should be owned for this year end bear market bounce:
1-Apple (NASDAQ: AAPL, Stock Forum): $25 billion cash, 0 debt
2-Automatic Data Processing (NYSE: ADP, Stock Forum): $1.5 billion cash, $66 million debt
3-Cisco (NASDAQ: CSCO, Stock Forum): $26.3 billion cash, $6.89 billion debt
4-Ebay (NASDAQ: EBAY, Stock Forum): $3.64 billion cash, 0 debt
5-Exxon Mobil (NYSE: XOM, Stock Forum): $40 billion cash, $9.64 billion debt
6-Garmin (NASDAQ: GRMN, Stock Forum): $660 million cash, 0 debt
7-Geron (NASDAQ: GERN, Stock Forum): $185 million cash, 0 debt
8-Google (NASDQ: GOOG, Stock Forum): $14 billion cash, 0 debt
9-Gushan Environmental (NYSE: GU, Stock Forum): $168 million cash, 0 debt
10-Intuitive Surgical (NASDAQ: ISRG, Stock Forum): $408 million cash, 0 debt
11-Lululemon Athletica (NASDAQ: LULU, Stock Forum): $43 million cash, 0 debt
12-NVIDIA (NASDAQ: NVDA, Stock Forum): $1.66 billion cash, 0 debt
13-Stryker (NYSE: SYK, Stock Forum): $2.6 billion cash, 0 debt
14-Yahoo (NASDAQ: YHOO, Stock Forum): $3 billion cash, 0 debt
This list of 14 stocks has been beaten down with the rest of the market and they will be the early leaders once sentiment changes.
Disclosure: author is long Apple.
Read more Stockhouse articles by Jason Schwarz.