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.
One common theme from the book is focusing on the ability to separate the empirical from the emotional. Sifting out the noise from the numbers -- the significant developments from the total ballyhoo. It's 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 -- and the kind of behavior that's made investors like Warren Buffett madly successful -- lies in shoving aside emotional barricades and focusing on the empirical facts. It's anything but easy, but the results are rarely disappointing.
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 |
1-Year Return |
Recent Share Price |
Forward P/E Ratio |
TTM Return on Equity |
CAPS Rating |
|---|---|---|---|---|---|
|
General Electric |
(52.5%) |
$11.75 |
12.4 |
15.27% |
**** |
|
UnitedHealth |
(4.5%) |
$24.77 |
7.8 |
14.43% |
***** |
|
Johnson & Johnson |
(9.1%) |
$56.60 |
11.6 |
28.76% |
***** |
Source: Motley Fool CAPS and Yahoo! Finance. TTM = trailing 12 months.
Still scared of GE? Get over it.
You'd be forgiven for hating General Electric. This was a once-beloved American icon strapped to what looked like an explosive financial unit. GE Capital looked so troublesome earlier this year that GE was essentially priced for failure.
That was the emotional side. The empirical side isn't quite as distressing -- GE Financial is actually one of, if not the, best-capitalized financial institutions on the planet. Measured by tangible common equity -- which I consider the single most important metric when sizing up a bank today -- GE Capital trumps its big-bank peers, including Goldman Sachs
Well managed, diversified company that is positioning itself nicely in technologies such as hybrid batteries, technology for health care reform, and carbon emission technology. Revenue from clean energy technology is expected to top $20 billion this year and up to $25 billion next year. Short and long term outlook for this stock is a can't miss. Plus they are diversified well with basics such as lighting, appliances, electronics, and jet engine technology.
An industry on life support?
UnitedHealth's problems are mostly political. There's a general concern that the Obama administration's universal-health-care quest will result in the extinction of private health insurance -- and a nation where everyone is forced to call each other "comrade."
Sure, that could happen. After the past year, we've learned to never say never. But color me skeptical when I hear that an administration hellbent on saving auto-industry jobs at any cost will seriously suppress the private health industry, which also employs hundreds of thousands of people. When reform does come -- and it will -- it will include the participation of companies like UnitedHealth. As CAPS member UNC31 wrote, "Government will use the big insurers in whatever remake they do on health care." This industry is far too large, powerful, and connected to be swept away by Washington, no matter its objective.
Good company, cheap price
Whatever is holding down Johnson & Johnson, I can't put my finger on it. Fears of a penniless consumer? The same health-care fretting punishing UnitedHealth? Worries that Tylenol is a passing fad? I don't know, and I don't really care.
J&J is a company with a wildly successful business model, trading at 11.5 times forward earnings. Much like Berkshire Hathaway
Your turn to chime in
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