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M* -- 2022 Selloff Has Left the U.S. Stock Market Undervalued

M* says its time for long term investors to consider adding to their growth stock holdings.....image
Stock Market Undervalued

Comments

  • edited May 6
    I don’t know about it being undervalued. And even if it were, “Markets can remain irrational longer than most investors can remain solvent ...” But if I were a youngster of perhaps 50 or 60 I’d buy a chunk of TRBCX (or similar) and let it ride. At 25-30% down this year it’s a compelling long term hold. But the operative phrase here is “long term.”

    I’m playing around adding a bit here and there to a few individual stocks I like in the areas of banking, insurance, consumer staples. Banking is getting hammered for reasons I don’t fully understand. Consumer staples have held up best - at least in my case. Also added a bit to precious metals miners as a hedge in case things really get out of control. Prudence dictated IMHO.
  • Those of us who can remember Dreyfus Liquid Assets Money Market fund paying 12%, CPI at 14% treasuries at 16% and mortgages at 18% suspect it could worse.

    The DJI was 600
  • It seems much depends on one's perspective on interest rates regarding valuations. The more rates go up, the less attractive growth stocks with high valuations seem.
  • edited May 6
    Lewis has it right. DKNG beat the numbers this morning with a very positive earnings report. Everything sailing along swell. User base growing nicely. Popped over 5% in the early going - but than finished down almost 9% for the day. Sounds like a lot of otherwise good growth prospects with a ton of debt are facing the same issue. I like to compare this one (which I own) with ARKK. ARKK held up slightly better loosing less than 5% today.
  • edited May 6
    If you have a stock with a 20 P/E or a 5% earnings yield and 10-year bonds instead of yielding 2% are now yielding 6%, you have to seriously ask why one would buy the 20 P/E stock? So the higher rates go, the worse all stocks, but high valuation ones look especially. The other question is leveraged stocks versus unleveraged ones. Those with high costs of capital and a lot of leverage will really suffer if they have to refinance at higher rates.
  • edited May 6
    Algos. Computer trading. Computers trading vs. other computers. The old in-out, in-out-in-out, in-out. (Remind you of anything in particular?) Rational and irrational are terms that don't apply anymore. It's all statistical bets and momentum, whether upward or downward. Wild rides, like a roller coaster. And why? For what? The machines are in charge. Not to mention hedge funds driving markets, too. I've seen it in one of my own holdings for as long as I've owned it. The stock is driven upward overnight, then hammered near the closing-hour, next day. Isn't there a law about such manipulation, fer crissake? ....On the other hand, one of my single stock holdings is falling closer to my limit-order price. .....
  • sma3 said:

    Those of us who can remember Dreyfus Liquid Assets Money Market fund paying 12%, CPI at 14% treasuries at 16% and mortgages at 18% suspect it could worse.

    The DJI was 600

    You may be conflating two periods - 1974± and 1980±

    The only time in the 1970s (or later) that the DJIA dipped below 600 was in 1974 when it bottomed out at 577. Looking at month end data one doesn't see this nadir, though one does find the average bopping around the low 600s for the latter part of 1974 before jumping back to the 800s in early 1975.
    image

    The BLS does confirm that M/M change in the CPI peaked at 1.3% (annualized rate of about 16.8%), even though the Y/Y increase didn't exceed 12.3% until 1979.

    The really high extended (Y/Y) inflation rates were in the 1979-1981 period. I suspect this is the period you really have in mind. The DJIA languished around 800 for the latter part of the 1970s.

    The Y/Y increase in CPI-U peaked at 14.7% in May 1980. Mortgage rates in the mid 1970s were relatively modest, at a tad under 10%. It wasn't until 1979 that they topped that figure, at 11.2% in 1979, 13.74% in 1980, 16.63% in 1981, and 16.04% in 1982. Though there were shorter term spikes of 16% and 18% in the 1979-1983 time frame.
    image

    Dreyfus Liquid Assets launched in February 1974 and did make a splash. In more ways than one. "Dreyfus Liquid Assets got caught holding paper from Franklin National Bank when it collapsed in 1974, but it was also bailed out by its sponsor." (Washington Post).

    In mid-1981, MMFs were yielding 17%-18%, and T-bills were yielding 14.54%.
    https://www.nytimes.com/1981/08/08/business/treasury-bill-rate-at-14.54.html
  • edited May 7
    d
  • ASML was the subject of a « tiptoeing-in » thread here in late January. The stock looked cheap to some at that time; today M* shows a YTD decline of almost 31% and gives the stock a 5 star rating on valuation basis. Shares dropped to $550 on Friday. Pretty tempting to nibble on this high quality semiconductor equipment manufacturer.
  • ASML is indeed tempting now although I prefer SMH to decrease my exposure to any one company. But SMH is incredibly volatile too …
  • Tech and small caps got beaten very badly past 4 months almost 70% in some instances
    Amd and asml had superb earnings recently
    Just chips shortage may subside soon
    $Soxl $Lcid $asml amd $nio could be good if willing hold 3 4 yrs
  • edited May 7
    I haven’t yet found Steven M Sears’ weekly Barron’s column very helpful. Deals a lot in sophisticated options strategies. This week Sears suggests in his lead-in that heightened fear makes now a good time to buy stocks. (On that I don’t know.) But than he tries to have his cake and eat it too by first citing Paul Tutor Jones who called the ‘87 crash as saying he wouldn’t currently want to own any stocks or bonds and than citing Warren Buffet who has been finding value.

    Sears aside, when I make a feeble attempt to evaluate some stocks, the historical return charts don’t appear outrageous / bubble-like, some of the businesses seem more or less recession proof and the p/e ratios look fair if not compelling. My thinking remains that the tech heavy S&P is probably overvalued, but that there are opportunities elsewhere. Just the view from a novice. Could be wrong. I won’t suggest any particular fund or stock. Do your own due diligence.

    Re the ARKK type “innovation” stocks: Not included in above meandering. These are fraught with peril. They’ve been tripped up by higher interest rates. That’s a 2 pronged sword. First, it makes carrying a lot of debt (often floating rate) very expensive and second it deters would be acquirers who would need to finance the acquisition with higher interest rate credit. I do own 1 (DKNG) in limited amount. By buying and selling often I’ve managed to get the average price paid down to $15. The stock closed just above $13 Friday - a far cry from its $70 top only a year and a half ago.
  • Re ASML: I've got a working limit order to acquire a significant number of additional shares at $535. We shall see. There's no question in my mind that ASML will recover to justify our position. There is however, a question in my mind as to whether I'll live long enough to see that.
  • edited May 7
    Old_Joe said:

    There's no question in my mind that ASML will recover to justify our position. There is however, a question in my mind as to whether I'll live long enough to see that.

    At my age, “day only” buy orders seem more prudent than the ones left running … :)

    (But does raise some interesting legal questions.)

  • Old_Joe said:

    Re ASML: I've got a working limit order to acquire a significant number of additional shares at $535. We shall see. There's no question in my mind that ASML will recover to justify our position. There is however, a question in my mind as to whether I'll live long enough to see that.

    Looks like you got your shares!
  • Sure enough. Let's just hope for the best... this is going to take a while.
  • I joined @Old_Joe in scraping what I hope is the bottom of the pit ASML and other worthies have fallen into. I’m hoping this selling is indiscriminate and that the sellers are missing something of value.
  • edited May 9
    @BenWP- "Misery loves company". :)

    A few things for sure:
    • Complex processing chips are not going away any time soon.
    • More and more very diversified products are using them, and demand is steadily increasing.
    • ASML is surely one of the top leaders in the fabrication of the most complex chips.
    • At least to this point ASML has a lock on the design and production of the equipment required to fabricate the smallest and most complex chips.
    • If (when?) something very bad happens to Taiwan and TSMC all hell is going to break loose with the need to replace that chip fabrication capacity.

    This may be a longish-term bet, given the current market conditions, but that's OK too.
  • There sure seems to be what looks like indiscriminate, irrational, and ill-timed selling in certain pockets of the market. Takes guts to put that "be greedy when others are fearful" maxim into practice though (mostly because I'm amongst the fearful!).
  • edited May 9
    sfnative said:

    There sure seems to be what looks like indiscriminate, irrational, and ill-timed selling in certain pockets of the market.”

    Yep.

    Not sure if irrational. Certainly indiscriminate.
  • Tech stocks are coming under selling pressure as QQQ was downed 4% today! Then oil and energy are down more than 4% too as China’s zero tolerance policy is taken place in several large cities. In the meanwhile, Taiwan is taking on a new approach - focus on the older demographic and vaccination.
    https://time.com/6174132/taiwan-covid-strategy/

  • edited May 9
    TRBCX (TPLGX) are mentioned at MOFO as a potential buy. M* fund analysis says that the fund's long term manager retired and a new manager took over in October 2021, and that the new manager previously managed only $7B (compared to the asset base in this strategy $160B).

    The fund has lost 35% in total return since its recent high on November 16, 2021. M* charts show $10K invested 3 years ago in QQQ and TRBCX would result in a balance of $17K and $12K, respectively. TRBCX balance is the same as it was pre-Covid (February 19-20, 2020) (i.e., gave up all the gains since beginning of Covid).

    Is the PM change a concern, as in, does he need more time to prove himself?

    Is the large asset base a concern?

    Edit: the fund’s P/E ratio is 31 as of 3/31/2022. At a time when the market seems to have low tolerance for high P/Es, is the high P/E ratio of its constituents ( and thus of the fund) a concern?

    P.S.: the fund is open to new investors.
  • edited May 10
    @BaluBalu,

    You may already know this - T. Rowe Price launched Blue Chip Growth ETF in 2020.
    The ETF has an expense ratio of 0.57% while the mutual fund charges 0.69%.
  • Thanks.
  • For anyone who might be interested:

    TCHP - T. Rowe Price Blue Chip Growth ETF.
    Net Assets 237.02M
    YTD Daily Total Return -26.93%
    Beta (5Y Monthly) 0.00
    Expense Ratio (net) 0.57%
    Inception Date 2020-08-04
  • FBGRX, Fidelity Blue Chip Growth, has actually outperformed TRP’s Blue Chip fund. Also heavily tech and growth names. Just another alternative for “bottom fishing.”
  • edited May 11
    Graust said:

    FBGRX, Fidelity Blue Chip Growth, has actually outperformed TRP’s Blue Chip fund. Also heavily tech and growth names. Just another alternative for “bottom fishing.”

    Thanks for the information

    I have in the distant past owned TRBCX. Was a fine fund 15 years ago. But things change. It fell 3% today putting it down over 33% YTD. If you liked it at the end of 2021, you gotta love it now - at 2/3 the price.

  • edited May 12
    I pulled up a 10 year chart of TRBCX comparing to FBGRX. The charts overlapped so much until March 2020 (Covid) bottom that one will be forgiven for thinking they are the same fund. But from Covid bottom, TRBCX and FBGRX diverged considerably and at TRBCX's recent peak in Nov 2021, FBGRX returned 175% while TRBCX returned 122%. However, from that peak, both have returned equal amounts and their charts look identical again. It is possible that from Covid bottom until Nov 2021, different active managers showed their skills but since Nov 2021, similar mandates performed similarly - i.e., manager skill may not have mattered much since Nov 2021.

    An observation similar to the one above can be made for TRGOX (T. Rowe Large Cap Growth fund) vs TRBCX (i.e., TGROX performed better) but FBGRX was a clear winner among the three during the Covid crisis.

    Additional Info: According to M* fund analysis, FBGRX has 281 holdings with an AUM of $70B in the strategy, while TRBCX has 83 holdings with an AUM of $160B in the strategy.
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