Then again, the system is in far worse shape than in your average bear market situation. Still, I would expect at least a short-term bounce in here soon. It may be a deceased feline, but it will be big enough to be tradable. Use the bounce to realign your portfolio.
I would continue to avoid the Financials. Dividends need to be cut or eliminated (preferably eliminated), and instead of buying back shares, companies will have to be selling new shares, either to the government or to other private investors. Current owners of those stocks will be seriously diluted, and we have still probably have several more failures of financial institutions to come.
Consumers are in the process of switching from being borrowers to being savers. That process means that they have to cut back on their spending. The more easily deferred the product or service a firm sells, and the less essential it is for basic living, the worse position a firm will be in. Can the car make it one more year? Yes, probably, so why go buy a new car today? Can you wear last year's fashions and not be cold or naked? You betcha. Spend $60 for dinner for a family of four at a casual dining restaurant twice a week? I don't thinks so.? People will eat at home or go to McDonalds (MCD)? instead.
Avoid the manufacturers and retailers of such products. Retailers in the middle of the price point distribution such as Gap (GPS) , J.C. Penney (JCP), Macy's (M), Abercrombie & Fitch (ANF) and Kohl's (KSS) are most at risk. Discounters like Wal-Mart (WMT)? and grocery stores like Kroger's (KR)? and Safeway (SWY) along with Drug stores like Walgreen's (WAG) should hold up better.
On the other hand, are things going to get so bad that you don't buy toilet paper, or let the baby go without diapers? No, I don't think so. Thus companies like Kimberly Clark (KMB) and Procter & Gamble (PG) are good places to hide out, and when they get hit with everything else it is a good time to accumulate them.
The same goes for some of the pharmaceutical companies like Abbott Labs (ABT) and Bristol Myers (BMY). While people are driving a little bit less and that has driven down oil prices sharply from the highs of July.
The price of oil is still well below a year ago, and the Energy sector is the only sector expected to show any significant growth in net income in the near future. Valuations in the group have gotten just plain silly cheap with the sector as a whole (total market cap/total expected net income) trading below 7x 2009 earnings. Most of the energy firms are sitting on fortress balance sheets and are rolling in cash. Start accumulating names like Conoco (COP), Exxon (XOM), Transocean (RIG), National Oilwell Varco (NOV) and Devon (DVN).
