The Investment U E-Letter
Tuesday, March 25, 2003 Opportunity Found!
By Dr. Steve Sjuggerud
President, Investment U Three things move the price of stocks, I often say. These three things are value, interest rates, and what I call market action. If you can find all three of these things in your favor, you have an excellent chance of earning extraordinary returns with limited downside risk in the markets. I presented a simple way to follow each of these at our annual Investment U seminar recently. Based on these three things, U.S. stocks in general are not attractive right now. But is there opportunity somewhere? Quite possibly. I crunched some numbers this morning to find out for you. And here's what I found… Are There Any Good Investment Opportunities Out There? I went looking for opportunity anywhere - and that means any "investable" country, and any stock market sector in the U.S. Interest rates are favorable at the moment. So I just went looking for two things: good values and decent market action. For value in the U.S., there's not much out there. Shares of homebuilders are the bright spot, with super cheap values (single-digit price-to-earnings ratios, for example) and earnings-growth potential. For value overseas, there are many countries trading at good values (for example, single-digit price-to-earnings ratios and decent dividend yields). These countries include China, Germany, India, Indonesia, Ireland, Israel, Russia, South Africa, and Thailand. For those of you with thick skin, Israel at a P/E of four may be the world's cheapest "investable" market (see below for how to do it from the U.S.). As for market action, it has been bad over the last 3 years. Stocks everywhere have been falling. However, we're starting to see some pockets of decent market action - of rising prices in certain sectors and countries. To gauge market action, you can use a blunt tool called "moving average." If the market's value today is higher than its average value over the last 40 weeks (the 40-week moving average), or the last 200 days (the 200-day moving average), then market action is decent. If it is below this average, then market action is bad. As you might imagine, market action is bad in most sectors and countries. There are a few sectors, however, with decent market action, or action that's right on the cusp, where it could go either way. The big surprise here is the Nasdaq Index - yes, the big Nasdaq! Up until 2000, market action on the Nasdaq was nearly always decent - the market was always going up. Since 2000, market action has been bad. Yet in the big rally of the last two weeks the Nasdaq broke above its 200-day moving average. This may be a bullish sign… but the problem with the Nasdaq is value - "there ain't any." Other sectors with good market action right now include tech and biotech, homebuilders and real estate stocks (REITs), and some areas in healthcare. As for countries with decent market action, a few names include Argentina, Australia, Brazil, Ireland, Israel, Russia, Spain, and Thailand. Attractive Values… With Good Market Action Depending on your e-mail program, you may be able to see that I've put a few countries and sectors in boldface type. There's a reason for this - these are the countries and sectors that are both at attractive values right now and are showing good market action. I've listed them once again below, along with the easiest way for Americans to take advantage of these… Homebuilders - DR Horton (DHI)
Ireland - The New Ireland Fund (IRL)
Israel - The New Israel Fund (ISL)
Russia - The Templeton Russia Fund (TRF)
Thailand - The Thai Fund (TTF) I must stress, these are not necessarily "buy" recommendations from me. The purpose of the Investment U E-Letter is not to give buy recommendations, but to help you to become a better investor. I wanted to share a simple thought process I go through to whittle down a world of choices into a handful of investments with potential. There are investment opportunities in stocks out there. We went looking for good values and positive market action. And we found it. Are you bold enough to consider some of these cheap markets that are already moving higher? I'll even admit, in some cases I am, and in some cases I'm not. Think about these parameters and maybe you'll come up with your own that you like better. However, after many years, I wouldn't stray too far from the three major things to pay attention to… value, interest rates, and market action. Good investing, Steve Back to Archive | 
