Our so-called junk rally has been unusually kind to financial fare, with the likes of Goldman Sachs
Never mind the still-fragile state of the economy, not to mention the weakness of commercial real estate or the fact that those toxic assets we used to hear so much about remain, well, toxic.
Though we've had a bit of a pullback during the early days of 2010, a deeply bought-into belief that happy days are here again has led to yet another spiked punch bowl -- and with the lampshade only recently fastened back on the lamp and the glass cleaner barely dry on the copy machine, too.
Further evidence: The tech sector has gone gaga. Indeed, over the last 12 months, the Technology SPDR (XLK) -- an exchange-traded fund whose top holdings include big boys like Dell
Yes indeed: The market is drunk again.
Party on, Wayne
Parties are fun while they last, but no one wants to be the last to leave. Investing ain't Sunday school, it's true, but fundamentals (and, um, fundamentalist investors) will eventually trump a "technical" rally, a rise powered in large measure by the fact that the sell-off we were in the midst of this time last year made equities a lot less risky relative to tamer alternatives like bonds.
All that investment capital had to go somewhere, after all, and into equities it went in a big way: The market has risen more than 60% from its March 2009 nadir.
All of which means -- to snip from a favorite Fool commentary: Danger, horror, get out! Unlike that must-read write-up, though, no irony is required here. Now really is a great time to cash out of clunkers and trade up to tougher stuff -- vehicles poised to provide greater mileage over the long haul.
Two for the road
I have more to say about the compelling case for UnitedHealth here, but in the meantime, another health-care concern looks similarly interesting: With worries over coming (eventually!) health-care cost controls more than priced in, now's a great time to give medical-device and implant maker Stryker
Art and science
No matter what data or political intrigue swirls around it, free cash flow (FCF) is my mainstay metric. Add up the cash a company has taken in from operations, subtract its capital spending, and voila: FCF, the lifeblood of any going concern that aims to remain a going concern.
The science of analyzing FCF involves assessing the present value of a company's future cash flows. And then the art kicks in -- determining whether a stock's current price is right in light of the return you require, given its risk and how wide your margin of safety must be.
That latter phrase refers to the gap between a company's stock price and your estimate of its intrinsic value. And that's where I'm currently stuck: A 60% market rise has made the market 60% less interesting to me, with fewer and fewer companies trading within my margin of safety. And as much as I like Stryker and UnitedHealth's prospects, their markdowns reflect the still-unsettled nature of the health care debate.
I'm a patient Fool, though, particularly when bargains are being conveniently served up on a silver platter. To wit: Even after the market's fast and furious run-up, the list of recommendations at Motley Fool Inside Value -- a service for dyed-in-the-wool cheapskates like moi -- includes more than a dozen companies trading at huge discounts to their intrinsic value. Indeed, one of the IV's Core recommendations is priced some 45% below the team's estimate of its worth.
If you're looking to winnow your watch list down to just those stocks you might actually buy, you can check out Inside Value's complete list of recommendations for the low, low price of ... free. No investment is risk-free, of course, but there's a margin of safety in Inside Value's numbers. Click here to take the service for a 30-day, no-cost spin.
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This article was originally published on Sept. 8, 2009. It has been updated.
Shannon Zimmerman runs point on the Fool's Duke Street and Ready Made Millionaire services, and he runs off at the mouth each week on Motley Fool Money, the Fool's fast 'n' furious radio show. Shannon doesn't own any of the stocks mentioned. Apple and UnitedHealth Group are Stock Advisor recommendations. Stryker and UnitedHealth Group are Inside Value picks, as well as Fool holdings. You can check out the Fool's strict disclosure policy right here.