The summer of 2009 is drawing to a close and as a number of us return from holidays and vacations our attention can once again be directed towards the stock market, our investment portfolios and the prospects of investing over the remainder of the year.
The problem so far in 2009 is that despite a huge amount of volatility earlier in the year the rest has been...well...pretty dry. Stocks, corporate bonds and mutual funds have all appreciated off their lows and a lot of investors are scratching their heads wondering where the value is in this current environment.
When you look at most measures of quantitative value such as price to earnings (P/E), price to book (P/B) or dividend yield there are a lot of stocks that don’t appear cheap and the ones that are cheap are inexpensive for a very good reason; a poor investment.
It’s at times like this that I look towards my discipline of investing in Enduring Value for guidance of where to allocate my investment capital. As a value investor I am always conscious of the price I pay for any investment (the quantitative value) but Enduring Value focuses as much, and at times more, on the qualitative factors of a company. As I update my
situational analyses on various companies as earnings are released I’m finding a number of companies I own are doing very well in key areas of value that I like to concentrate on.
The Spread
There’s a lot of focus right now on earnings and what companies are beating or missing their respective targets. Earnings are certainly important, but the EPS we’re seeing posted by many companies is of poor quality considering the economic landscape we’re in. Right now I’m not as concerned with earnings as I am with companies that are fiercely protecting their margins in the face of lower consumer demand and rising costs. Two companies, Costco (
COST) and Coca-Cola (
KO), have shown a longstanding commitment to not competing on price and they don’t sacrifice their margins in order to spur demand.
Competing on price will rarely, if ever, move a company into a better position over the long-term and when the economy (domestically or globally) turns around a company wants strong margins to take advantage of.
