28 October, 2008

Tuesday brings in Valuation Hunters, Stocks Rise 10%

The headlines were set to spook once again: "Consumer Confidence at all-time low" (CNN). "Home prices see record plunge" (Reuters). But the bargain and valuation hunters were out and about nonetheless. When Stocks get this cheap the big-time and small-time Investors stand up and take notice.

Aluminum maker Alcoa (AA) fell to its lowest P/E ratio ever-recorded and today observed value-investors jump in cautiously in early-morning trade but emphatically as the day moved forward. Alcoa gained almost 18% on the day as both the Dow and S&P gained a full 10 percentage points.

In other good news, Boeing (BA) Investors took a deep sigh of relief as the company struck a tentative deal with its Machinist workers. A strike that, at the worst possible time, plagued the company for weeks on top of economic-driven market sell-offs. Boeing shares recovered 15% on the day.

Wireless Carriers in North America had a particularly positive rebound trading session. Verizon (VZ), up 15%, jumped for the second straight session and AT&T (T), up 13%, followed closely as Investors are taking heed of Wireless growth prospects despite economic woes. Devices like Apple's (AAPL) iPhone and RIM's (RIM) Blackberry Bold and Storm models are creating value-propositions that customers are willing to engage in. As Apple announced their quarterly results last week, headlined by almost 7Million unit sales of iPhone 3G, Carriers around the world are now beginning to see a customer set willing to spend more on combined Voice and Data plans.

In Canada, Rogers Communications (RCI.B) announced its quarterly results, which of course were headlined by iPhone sales of over 250,000 units. The battered Canadian Wireless company stock rebounded 11% on the day.

Investors, analysts and the media in particular, like to beat the doom and gloom drum on bad days and the euphoric relief drum on good days, but for those observing and waiting on the sidelines it is easy to get caught into the hype. Companies still trade on fundamentals and valuations, and while attractive valuations are observed all over the market these days I'd be much more comfortable seeing sustained positive moves over a number of days, rather than a valuation-based up day that now prices in complete expectations of a further half-point Federal Reserve Interest Rate cut.

This market will need some more positive reinforcement, so until then, as great as it feels to be euphoric about stocks again, the euphoria will have to wait for now.

Disclosure: Author owns AAPL, T, RCI.B, BA

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