I got into a fistfight in a bar the other day. There was blood everywhere. I got glass splinters in my face. The other guy might still be in a coma. I'm still wearing the white bracelet they put on me when they checked me in for "observation."
This is how I feel every day when I battle the bears who participate with me on an email list made up of investors and traders. The wall of worry is huge and seemingly insurmountable. But here are a few bricks for the wall of hope.
1. Private equity. There's roughly a trillion dollars sloshing around in the private-equity world, including the money that banks would lend to close any major purchases. With Blackstone buying Hilton at 16 times cash flows and the average purchase now coming in around 11 to 13 times cash flows, it opens up an entire universe of stocks that can be takeover targets. Possible candidates include Macy's and Wyndham.
2. Retail investing. The retail investor still has not gotten back into the game. The cover story in the latest edition of Barron's highlights that fact and offers various statistics that retail investors are showing nowhere near the level of interest they exhibited at the top of the bull market in 1999 to 2000. Until that happens, I don't think we're anywhere near a blowoff top. As the retail investor comes back, interesting ways to play that include E*Trade and Charles Schwab. E*Trade in particular has a price-to-earnings ratio right now of 14.9 and a forward P/E of 11; any additional investor interest likely will send that forward P/E down into the single digits, making it even a potential buyout candidate by a larger bank.
3. Buybacks. It's in the news every day so you would think this is just completely baked into the market, but it isn't. There are currently about $600 billion in buybacks under way right now. Cigna, IBM and EMC are all companies that could benefit. Check out the "Mad Money" Buybacks portfolio on Stockpickr to see companies that are purchasing their shares and actually reducing shares outstanding.4. Low-P/E oils and financials. There's only so low the market can go when 50% of the companies that make up the S&P 500 are trading at single-digit multiples of enterprise value over EBITDA. (Enterprise value equals market cap plus net debt and represents a fairer assessment of what a buyer has to pay to buy the whole company. And EBITDA is earnings before interest, taxes, depreciation and amortization.) For instance, Goldman Sachs, the best investment bank ever, has a P/E of 9. Exxon Mobil, the mega oil company, trades at six times EBITDA. Heck, even recent IPO Blackstone trades at nine times EBITDA.
5. Global economy boom. Eastern Europe, India and almost every part of the third world are building and rebuilding their cities, flushing out their infrastructure and beginning to participate in the global economy. Let's not forget that 40% of the revenues of S&P 500 companies are foreign sales. Not to mention that many of the companies that are building out the global infrastructure -- in particular General Electric -- trade on the U.S. markets.
6. China. This deserves its own category. No matter how you slice it -- increasing numbers of Internet users, increasing demand for oil, increasing demand for steel and cement, increasing demand for financial services -- companies doing business in China are going to boom over the next 20 years. Whether you like Baidu.com as an Internet play, Korean steel producer Posco as a Warren Buffett play or PetroChina as an oil company, China is a strong market. And that doesn't necessarily mean buying Asian stocks. Even plays like railroad company Burlington Northern, which ultimately ships commodities from the Midwest to California so they can be sent to China, benefit from the China boom.
7. Tech upgrade cycle. Every aspect of technology is going to go through an upgrade in the next two to five years, and not just corporations upgrading their computers to handle Microsoft's Vista operating system -- although that will happen. Individuals will move from analog to digital TV -- Best Buy likely will benefit -- and consumers will buy phones that can handle Web access much like the Apple iPhone, and there's the entire alternative-energy tech boom, of which chipmaker Applied Materials will be a prime beneficiary.