Nassim Nicholas Taleb's best-selling book The Black Swan is probably loaded with more good advice than any other single source available. Read the book a few times, and you'll have a better understanding of risk and uncertainty than the vast majority of fancy-pants financial experts do.
One common theme from the book is the ability to separate the empirical from the emotional. Sifting out the noise from the numbers -- the significant from the ballyhoo -- is one of the most important lessons to remember, especially in a market like this, where fear, uncertainty, and raw emotion are in the driver's seat.
More investment opportunities are being created from market temper tantrums than we've seen since the Great Depression. The trick to finding great investments lies in shoving aside emotional barricades and focusing on the empirical facts.
To find a few stocks whose empirical details far outweigh their emotional fears, I called on the wisdom of our 135,000-member-strong CAPS community. In my opinion, these three stocks have too much fear and too little fact baked into their current prices:
|
Company |
Recent Share Price |
Market Cap |
1-Year Return |
CAPS Rating |
|---|---|---|---|---|
|
AT&T |
$25.48 |
$150 billion |
(19%) |
**** |
|
Ford |
$7.90 |
$25 billion |
61% |
** |
|
Cemex |
$11.14 |
$9 billion |
(47%) |
***** |
|
Pfizer |
$15.80 |
$107 billion |
(20%) |
**** |
Sources: Motley Fool CAPS, Google Finance, and Yahoo! Finance, as of Aug. 13.
A closer look at Ford
Ford? Seriously? Ford? Mm-hm. Ford. The car company.
Am I nuts? Perhaps. And this definitely isn't one for the faint of heart. Or the pessimists. Or the wet blankets. But there's reason to be mildly hopeful about autos these days, believe it or not. And it comes from the unlikeliest of places: the housing market.
Earlier this year, Warren Buffett gave a simple rundown on the forces that will create a housing rebound. He noted that every year, nearly 1.3 million households are created, yet housing starts are running at only about 500,000 per year. Accordingly, excess supply is being eaten away quite quickly. Remove excess supply that rapidly, and markets will find a bottom. Problems correct. Markets work. Pretty straightforward.
A similar argument can be made for autos. Right now, new-auto sales are running at around 9.5 million vehicles per year. That's a ghastly plunge from the 13.2 million sales in 2008. Nonetheless, we scrap, on average, about 11 million to 13 million cars every year. Hence, more cars are being scrapped than new cars are being sold. Unless you think we're destined to become a bunch of Flintstones families, that isn't sustainable. And it means, sooner or later, that demand for autos will pick up. With auto-industry expectations about as terrible as they can get, it's reasonable to think any significant boost in sales will be warmly welcomed.
Now, Ford isn't immune to the idiocy that killed its neighbors General Motors and Chrysler. Moreover, its failure to go bankrupt means that its debt load could put it at a disadvantage. But customer perception and management independence are likely to put Ford a step ahead of its ward-of-the-state rivals. As CAPS member bglaze250 writes:
The only major American auto company not actively engaged with the U.S. government or in bankruptcy? It would be foolish to assume that Americans, in the near future, won't want to begin buying new cars, especially the kind of cars that Ford makes. Despite the fervor over green energy and gas efficiency, Americans still want large, safe cars -- and the car sales reflect that. Sign me up.
Granted, Ford shares have been on a tear lately. The biggest gains -- those that were had when the world realized it wasn't about to keel over -- are behind us. And, yes, the competitive risks posed by Toyota
But if you're in the camp that thinks Ford's autonomy will allow it to consistently take away market share from GM and Chrysler, the future could still be bright. Average analyst expectations call for Ford to earn more than $2 per share by 2012, a position that could be quite lucrative, considering today's $8 share price. True, 2012 is a long way away. And no one has a clue whether those expectations are even remotely right. But it might not be worth betting against the last automaker standing.
Your turn to chime in
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