When you think about markets in emerging countries such as Latin America, China, India, what pops into your head? Huge swings in prices? The possibility of government seizures? Big opportunities? Dare I say ... a tendency toward panic?
Well, guess what, Fool? That's a pretty good description of the U.S. markets right now.
Up! Down! Up!
Just a couple of weeks ago, after all, the S&P 500 was up 11.6% one day, down 9% two days later, and up 4.2% the day after that. The Dow Jones Industrial Average followed a similar pattern. Whew!
And all that movement wasn't really following any logic. Rather it was reacting, even overreacting, to the latest news. When companies like Buffalo Wild Wings (NASDAQ:BWLD) drop 21% or Mechel (NYSE:MTL) shoot up 45%, each in a single day, you know investors don't have their thinking caps on. For both of those, there just wasn't any news to explain the movements, other than general market doldrums or euphoria.
Those are the kinds of moves you expect to see in an emerging market -- not a developed one like ours. And historically that's been true. Recently, however, everything's different. In fact, the Chicago Board Options Exchange Volatility Index closed at a record 80.06 last week, when "normal" volatility is below 30.
Huge swings in prices? Check.
You're mine!
One of the risks of investing in emerging markets is government seizure of a company or its assets. ExxonMobil (NYSE:XOM), for example, had $12 billion worth of assets seized in Venezuela, and Russian Prime Minister Vladimir Putin recently threatened Mechel.
Here? Well, it hasn't been taking over by fiat, but the Federal government did the next best (worst?) thing with its "rescues" of Fannie Mae, Freddie Mac, AIG, and the banking industry.
Major government intervention? Check.
Here comes the big opportunity
Big opportunities in emerging markets generally come from the greater-than-average growth born of infrastructure development and the rapid growth of the middle class.
Here, though, the big opportunity comes from the across-the-board haircut Mr. Market has gotten. On Oct.22 alone, 833 companies trading on the NYSE and the Nasdaq hit 52-week lows. Just three weeks earlier, twice that number did the same.
Do some of them deserve their haircuts? Absolutely. All of them? No way. Many growing, well-capitalized companies have just been caught in the storm. Here are some examples:
|
Company |
% Below 52-Week High |
Debt to Capital Ratio (trailing quarter) |
Average Net Income Growth (trailing 3 years) |
|---|---|---|---|
|
Cisco Systems (NASDAQ:CSCO) |
46.5% |
16.7% |
11.9% |
|
Corning (NYSE:GLW) |
58.2% |
10.3% |
95.3% |
|
MEMC Electronic Materials (NYSE:WFR) |
76.8% |
1.4% |
37.1% |
|
Research In Motion (NASDAQ:RIMM) |
62.5% |
0.1% |
76.5% |
Source: Capital IQ, a division of Standard & Poor's.
If these companies -- and other companies like them -- continue to grow net income at rates approaching what they've done, the market will realize its mistake soon enough and send their prices back up.
Big opportunities? Check.
The Foolish bottom line
The U.S. isn't really an emerging market -- its financial reporting requirements are stricter and more transparent than those of most any other nation, it has low historical volatility, and it tends to have more hands-off government. But right now it's doing a good impression of one.
And that means there are nearly unprecedented opportunities to invest in strong companies selling for fire-sale prices.
Philip Durell and the Motley Fool Inside Value team are scouring the market to find the best of the big opportunities -- and they're excited about what they're finding. If you'd like to see what they're recommending for new money now, consider a 30-day free trial -- you'll see what they're recommending now as well as all of their past recommendations and insight into how you can take advantage of this market. Just click here to get started -- there's no obligation to subscribe.
Jim Mueller swears he hears a little bell ringing just before Philip's team starts looking for the next pair of ideas, but he knows Pavlov died a while back. Oh, well. He owns shares of Buffalo Wild Wings, but of no other company mentioned here, but many of them are causing him to salivate, too. Buffalo Wild Wings is a Motley Fool Hidden Gems selection, and the Motley Fool owns shares. The Fool's disclosure policy knows better than to respond to a silly bell.
