Stock Market: Buying Opportunities For Long-Term Investors
Despite good earnings results overall for the first quarter of 2005, the markets continued to dip and dive. Major indexes declined to lows for the year on April 13 - numbers far below those of just a few weeks ago. Economic data remain the key influence on the stock market, and many Wall Street commentators believe investors will remain nervous and quick to sell on any suggestion of bad news - economic or geopolitical.
Are we facing a real slowdown in the economy? Many experts are looking to April’s reports on auto sales and payrolls to provide clues as to whether consumer spending will be back in high gear to boost the economy in the second quarter. Inflation fears remain high, and investors worry that the Federal Reserve might countenance more aggressive measures to combat inflation.
In the midst of gloomy prognostications and investor trepidation, some experts see opportunities - major buying opportunities. They encourage investors to look at the big picture and - most importantly - to do a little simple math.
When nervous investors, day traders, and short sellers have driven down stock prices, that’s when long-term investors - saving for retirement some 10 years or more - should go bargain hunting. After April’s mini-crash, the Dow was selling for about 17 times earnings - about 15 percent less than this time last year - at a time when earnings are up about 17 percent. To put it another way, these stocks cost less and are delivering a significantly better return. The pattern is the same for the Standard & Poor’s (S&P) 500. History shows over and over again that long-term investing pays off, and that investors who are in the market for the long haul ride out the down periods to realize significant gains. Consider that over the last 75 years the average gain for investors who held their positions and reinvested dividends for a 10-year period is about 230 percent.
There are many sectors that may merit your attention. Cheered by positive earnings news from industry giants like Yahoo and Nokia, some Wall Street commentators believe that the technology sector - overlooked for a long period - may yield some great buying opportunities.
This bullishness is not universal. Some analysts believe that many technology companies with price to earning (P/E) ratios in the 20 to 30 range still remain too expensive - despite the fact they are significantly down from the 100 + range of the late 1990’s.
Despite these naysayers, the bulls in the sector believe that tech shares, which are off more than 60 percent since their high point in March 2000, offer some attractive investment opportunities. What’s fueling the optimism? Analysts cite discounted share prices coupled with improving fundamentals, especially corporate spending forecasts. Reports suggest that corporations who buy technology are cash-rich and are beginning to give the "green light" to major technology projects. This optimism is qualified. Many bulls urge selectivity and are focusing their attention on the large-cap technology companies. They note that many of the industry giants - for example; IBM and Microsoft - carry no premium, unlike some mid- or small-cap techs that are currently at a 35 percent valuation premium. Other sector leaders including Dell, Intel, and Cisco have their advocates, who point to their strong cash positions.
Whatever your investment approach, take heart and remember that when the going gets tough, the experienced long-term investor goes shopping for bargains.
As always, the above is not intended to be a substitute for the counsel and advice of your investment advisor and tax professional.