The Buying Opportunity of a Lifetime

This week’s issue of Investment Expert Insights features Louis Navellier, chairman and founder of Navellier & Associates in Reno, Nevada. He and his team of more than 50 professional analysts and staff manage over $5 billion in mutual funds and institutional accounts. 

Navellier also writes four newsletters/trading services for individual investors: Emerging Growth, Blue Chip Growth, Quantum Growth and Global Growth. He has established one of the most exceptional long-term track records of any financial newsletter editor in America. 

Louis, what advice are you giving subscribers/clients to weather the current storm? 

I have been doing this for decades and clearly remember the crash of 1973 - and especially the plunge of 1987. Every time the market finds a bottom, there is a "flight to quality" as investors focus on the facts and look for fundamentally strong stocks that are growing their sales and earnings. 

I use that experience to tell my subscribers that downturns are not unusual and that they can use these periods to establish portfolios that will carry them all the way to a second home, dream vacations and a comfortable retirement.  

For specific portfolio instructions, my advice is to take two simple steps: first, sell your weak stocks that are not growing their profits or sales fast enough. Second, reinvest that money in the fundamentally superior stocks that are trading at a bargain right now. P/E ratios are currently at unbelievable levels, and this is quite possibly the best buying opportunity of our lifetimes, so jump in with both feet before you miss the rebound! 

Is your focus on safety or profits or both, and why? 

I would definitely say "both," but with one caveat: investors foolishly thought that if they went to cash after weeks of declines that they would somehow be "playing it safe" instead of just making their massive paper losses painfully real. In other words, investors let their emotions dictate what was safe, and that’s not the type of safety I employ. 

Safety comes from properly diversifying your portfolio. My subscribers are invested in food, energy and health care companies because it provides an excellent mix of companies, and that’s where the earnings are strongest. After all, everybody still has to eat, heat their home and take their prescriptions no matter what the economy is doing. 

Here’s where the profits come in: the profits and sales growth in these companies are frankly astounding, and September’s market meltdown cannot hide that for long. Good corporate bonds are now yielding 15%, and cash-rich companies are now paying 8% dividends. The fact of the matter is that our upcoming third-quarter earnings announcements are supposed to be up in excess of 60% with over 30% annual sales growth - even though the stocks now trade at barely 10 times forecasted earnings! 

Risk and reward have to be accounted for with every investment, and if you look to sectors that can grow through tough times and find companies that are executing their business models, you’re going to own safe companies that deliver superior profits. 

I think that some confidence has already been injected - literally in the form of liquidity from the U.S. government, but also with a steady thawing of the credit freeze in the form of falling LIBOR rates and more active commercial paper markets. But obviously we have a long way to go in fixing consumer confidence, and the housing market is still a mess. All that talk about shrinking GDP is no picnic either! 

While I don’t think there’s a magic bullet that will erase all the doubt and fear, I do think that a number of factors right now will restore confidence over the next several weeks. The current third-quarter earnings season - coupled with the seasonal "holiday bounce" on Wall Street and the lift provided by a presidential election - will provide stability in the market after a rough September and October. Investors have already started testing the waters and are sure to return in force over the next few months. 

That lasting stability will change the tone on Wall Street from "how low can we go?" to "how long will the rebound last?" While there are admittedly many problems for the economy, once the market starts looking up again instead of looking down, we will see confidence return to everyone - investors, businesses and consumers. 

That’s a tough question. I probably would have reluctantly voted for the bill because obviously letting banks fail was not an option. Consumers have no problem flying a bankrupt airline, but keeping your money at a bankrupt financial institution doesn’t sit well with anyone. This crisis of confidence that was unique to banks and brokerages would not have been fixed without intervention. The liquidity needed just wasn’t out there on the open market, and no private institution would have lent the money if there had been. 

That said I am extremely angered by the way sloppy business practices have been rewarded with a government handout. Equally disturbing is that in the effort to protect taxpayers like you and me, federal regulators have taken a big step towards nationalizing the banking industry. The plan is to get out eventually, but forgive me if I don’t place too much faith in the ability of our government to take its hand out of the cookie jar. 

But don’t think I’m hopeless. Treasury Secretary Hank Paulson’s hints that the government’s capital injection program could actually make the government money are a good sign. The Treasury effectively forced a number of major banks to agree to issue preferred stock with a 5% yield in exchange for the cash. The conditions mean that the longer it takes banks to pay back Uncle Sam, the more they will dish out to the Treasury. In a nutshell: either our banking system gets healed in a hurry, or we taxpayers see a healthy return on our investment. 

So while I would have had my misgivings, the "bailout" bill was a necessary evil. I just hope that next year Congress has the leadership to enforce accountability and make sure the government gets out of the banking business as soon as possible. 

What would be your fix for the financial crisis, and is a fix in this sector necessary to boost the markets? 

In my opinion, the "financial crisis" is more accurately defined as a "credit crisis." After all, the problem for financials was that they didn’t have enough liquidity and they couldn’t get the credit they needed to function properly. And as indicated by the steady decline of LIBOR rates, the unclogging of the commercial paper market and the increase in the "velocity" of money, the credit crisis is on the mend already thanks to the fixes by central banks and regulators around the world. In short, the fix is already in. 

The only remaining domino to fall is the housing market, which I expect to bottom out over the next few months now that construction has slowed to a crawl and lending to prospective homeowners has started to speed up again. Legislators have been kicking around a moratorium on foreclosures, and that would help speed up the recovery in housing even more. But other than that, I think the "financial crisis" is largely behind us. 

While there are certainly challenges ahead, I feel that the worst is behind us as the actions by Congress, the Fed and the Treasury have put us firmly on the road to recovery. 

Given the flight back to quality that we’ve talked about, I’d putCSX Corp. (NYSE:CSX), General Mills (NYSE:GIS) and Public Storage (NYSE:PSA) at the top of investors’ lists this month. 

CSX Corp., an excellent railroad carrier, beat Wall Street expectations after earnings leapt 40% over last year and revenue was up 18% thanks to strong U.S. exports of grain, coal and metals. That makes four quarterly reports in a row where CSX has met or exceeded expectations, with an average surprise of 10% each quarter. 

General Millshas been remarkably resilient since we bought it last month. This is a classic example of a fundamentally strong stock that can weather the worst of the volatility and surge to the top of the market when the rebound takes shape. 

Public Storageis one of the largest self-storage companies in the United States. Not a glamorous business, to be sure, but it’s quiet and efficient companies like this that are consistently the top performers on the Blue Chip Growth Buy List. After all, think of the meager overhead and massive profit margins a well-run storage operation could have. All you have to do is buy the land, pour some concrete and collect the rent! 

How does your advisory service help its subscribers/clients get through times like these? 

To put it simply, we focus on the facts. This market has been ruled by emotion lately and you can’t be successful if you let your emotions guide your strategy. As you know, I’m a numbers guy. I don’t believe emotions have a place in investing. If anything, today’s roller-coaster stock market is making a clear case for that. To be successful, you have to do your research and listen to what the numbers are telling you. That’s why my team and I constantly scan the market for stocks that are near the top of the heap in the eight key fundamentals I strictly follow. As the variables change, we change our investments. We don’t hold on waiting for a losing stock to come back - which is all too often the case with investors who become too emotionally attached to their stocks. Our ability to stay on top of what’s working on Wall Street has helped us beat the market nearly 4-to-1 for over 20 years. 

If you had an average Joe investor standing in front of you, what would you say to him/her to ease concerns and raise confidence in the economy and markets? 

I would say to Joe that while the last year has been mighty bitter, it has set us up for a very sweet recovery. Wall Street is making history right now. Fortunes are made and lost in an environment like this. It’s no exaggeration to say this is a once-in-a-lifetime market. I hope that you take advantage of this buying opportunity right now. 

The dust is officially settling on the credit crisis, and I am confident that fundamentals will rule the day in the coming weeks now that some stability has returned to Wall Street. As you’re looking to buy new stocks, focus on those that are fundamentally strong. Any position you add to your portfolio now must be increasing sales, expanding operating margins and showing strong earnings growth. Companies with these characteristics will rule the day as trillions in idle cash floods back into the market.  

Joe will have no problem meeting his financial goals and dreams if he sticks with a long-term plan of buying fundamentally strong companies. 

Get more expert advice and stock picks at NewsletterAdvisors.com!  Past and current contributors to NewsletterAdvisors.com’s long-running special report series include Louis Navellier, Tom & David Garnder, Bernie Scaheffer, and many more.  Request the latest special report from NewsletterAdvisors.com right now - it’s FREE!