POST OF THE DAY
Berkshire Hathaway
Dow Bargains

Related Links
Discussion Boards

By PhoolishPhilip
October 27, 2008

Posts selected for this feature rarely stand alone. They are usually a part of an ongoing thread, and are out of context when presented here. The material should be read in that light. How are these posts selected? Click here to find out and nominate a post yourself!

I just took a quick look at the Dow 30 reports freely available at Valueline and was surprised to see how many are trading at 17 year lows on a price to earnings basis. Of the 30 in the index the following stocks haven't traded this low since before the recession of the early 1990's: Boeing, Dupont, 3M, American Express, Caterpillar, Chevron, Coca Cola, Disney, Exxon Mobil, HP, Home Depot, IBM, Kraft Foods, and Microsoft. That's nearly half the index trading at multi-decade lows. Sure earnings are likely to contract, and sure a lot of these companies are loaded with debt, but do you really think they are going to see a complete collapse of earnings and the risk of bankruptcy? Exxon and Microsoft have a sick amount of cash on the balance sheets, and Coca Cola may be cheaper than when Buffett last loaded up on the shares.

On a dividend basis alone a lot of these companies are attractive, especially when you consider that they are setting at multiple decade lows on a PE basis. Hell, Kraft and Chevron offer nearly 4%, which is better than 10 Year Treasuries, while Coke is offers 3.3% for your money while you wait for the depression to send us all back to hunting and gathering. This is truely insane.

Unless you think the economy is going into a great depression worse than the original great depression, Mr. Market is offering up a once in a life time bargain for many of the strongest companies in the Dow. How wrong can you go buying AXP, Chevron, KO, IBM, KFT, and UTX at yields of 2-4% and PEs of multi decade lows? I know I'm going to be looking a little more closely at some of these stalwarts.

One final point: I am convinced that much of this selling, which the media attributes to fear of an economic collapse, is technical in nature. That is a lot of Hedgies and banks are delevering and forcing down these relatively safe companies.

PP