The week long selling on the stock market on steady, lower than usual, volume, is still nonetheless disturbing for permabulls. Investors who have a net bias bullish position on stocks, through long holdings and call options, must now consider the risk of a prolonged market drop.
Value investors are on the other side of the trade where the grass may be greener. As stocks fall, valuations get more attractive. Assuming the market is exaggerating the future growth and earnings power, the stock’s discount to fair value will give investors a bigger margin of safety.
New 52-week lows from strong, established brands sets this market’s weekly weakness apart from the past. Exxon Mobile (NYSE: XOM) closed at $72.89 and at a forward P/E of 22.5 times. Considering the solid dividend of 4.23% and oil prices above $60 per barrel, the market is irrationally dumping this energy play.
Conglomerates are out of favor today. Proctor & Gamble (NYSE: PG) closed 20% below its 52-week high. The stock’s dividend yield is 3.64%. Markets are extremely pessimistic with global trade. Trump’s threat of tariffs on $60+ billion worth of China-made goods is just a starting negotiating position. This will change within 30 days.
Even entertainment stocks – Disney (NYSE: DIS) and Comcast (NASDAQ: CMCSA) are not immune to the selling. Netflix, the streaming giant, is bucking the trend, although a ~10% drop from highs is a sign of more selling to come.
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