Brutal Markets = Opportunity

The Xmas season is upon us and we all know there is not much to cheer about when it comes to the economy, the stock market and our portfolio's. Heck, put some more rum in the egg nog!

With over a half million jobs lost in the United States over the last month it might seem that we are headed for a depression,just remember the U.S. economy is has over 300 million people.Although the jobs lost is not insignificant, what would have been more concerning is if we would have lost one million jobs. We all know we are in a recession, and it will be a sever downturn, but a depression is not likely.

Governments worlwide are pushing through large stimulus packages and central banks are cutting interest rates faster than a teenager pops a pimple right before a date.Large deficits are now fashionable because there is no alternative and cutting spending for healthcare and education is not politically tolerant. Boosting spending for infrastructure projects (bridges, roads etc) will have significant payoffs in the long run but don't expect it to be the immediate cure for our economic ills. It will take time to spend the money and the positive effects from all this spending won't be felt till around 2010-mid 2011.

So with all this turmoil, what are investors to do? You BUY, BUY, BUY BUY. Don't be part of the herd and panic and sell good quality businesses. You are not a hedge fund and you don't have to report your performance in order to get some ludicrious bonus that will pay you more than what some small eastern european country has in its treasury.

As usual you want to be selective of what you purchase, you want to own the diamonds in the rough and avoid th coal. But when you allocate you money, remember this very important tip. You should NEVER look at your investment as buying into a stock, rather you buying into a business. That type of mind set will change what type of businesses that you own in your portfolio. Solid business with good management will always offer superior long term results, and during economic downturns will offer you a level of protection even if the shares fall 50-60% in price. What is that protection? Its longevity and the fact that they are still making a profit and will suruvive the downturn.

So here are some businesses that you want to own.

1) TD Bank $43 (TD-TSX)This is one of the best managed banks in the world. TD did not hold any subprime mortgage or toxic CDO'S, they bought a well run U.S. bank,no major writedowns they increased their dividends in 2008, and they made just over a billion dollars in the last quarter even with a financial credit crisis. No other Canadian bank can match this management team, every other major Canadian bank had exposure to the subprime market but TD. The facts speak for themselves.

2)JP Morgan & Chase Bank $33.75 (JPM-NYSE) Although this bank has had some exposure to the subprime mortage market, it was not a lot and they did not over leverage themselves like the other large U.S. Commercial Banks. They picked up Washington Mutual Bank and former Investment bank Bear Sterns for a song, with the U.S. goverment absorbing much of the losses those institution helds and Morgan has increased their deposit base in U.S. West primarily in California.

The merging of U.S. banks now is creating a situation where years down the road you will have large American Super banks, like we do in Canada with our big 5. JP Morgan with be the biggest one in my opinion. JP morgan as usual is taking advantage by buying weaker banks and consolidating them into their fold and cutting costs. This bank is better run than the other large U.S. banks like Bank of America and Citigroup. they have not cut their dividends, they raised $10 billion without a hitch to buy Washign Mutual Bank (shows the level of investor confidence) and have not cut their dividends like the other two. At this price you also get a 4.75% yield. I think that Bank of America will be cutting heir dividends again and will be reporting huge losses, Citigroup banks has cut their dividend to 1 penny.

3) "I"Shares High yield Corporate Bond Fund $64 (HYG-NYSE) Basically this fund hold close to 3000 junk Bonds and is an index. A lot of time you want to own investments that no one wants right now. Junk bonds are one of those. You spread your risk with an index and the U.S. economy rebounds, junk bonds will one of the first sectors to go on the upside. Junk bonds trade more based on the health of the economy than they do on interest rates. The last time an opportunity like this came around, was in the early 1990's recession when the junk bond market collapsed. When the economy came back, they made a lot of money for people who bought them. This index is down over 35% so the downside potential is alot less for you at this price. The 15% yield is certainly appetizing and even if it is cut, you will still be getting a decent return because the index is spread out so much over different bonds.

4) PEPSI $53 (PEP-NYSE)People are still going to drink their pop no matter what happens. PEPSI had no exposure to the financial sector, they have well diversified food snack division, the majority of their revenues come from abroad, their dividend is safe, and they have an excellent management team. You also get a 3.25% dividend yield.

5) COCA COLA $45 (KO-NYSE) The same rules apply to Coke as they do Pepsi, minus the snack food divsion. If you think that you can never get rich off Coke stock, then ask Warrent buffet how he has made out. This company has a safe dividend, a Triple AAA credit rating, and is a truly a global company with unparellet market share and reach. You get a nice 3.31% yield.

6) Johnson and Jonnson $58 (JNJ-NYSE) Another global drug and consumer medical care company. JNJ has gone on a recent buying spree and they realize that downturns creates opportunities in buying other companies to expand their market share. This company has the money, the credit rating to do it. I like companies that seize on weakness and buy for the long term. With a 3.3% yield, you get paid a nice dividend.

7) "I" Shares $34 (IYR U.S. Real Estate Index Fund)This fund index is a composite of Commercial REIT, and this fund has fallen in the last 52 weeks from $74 to $34. This index has fallen as investoras are concerned about the prospects of Commercial real estate companies and there ability to keep up there current payouts, as the economy slows some tenants go bankrupt increasing the vacancy rates. However, this index is an excellent way to diversify risk within the sector and the price has fallen so far that it now represents good value. Further downside risk is now a lot less than it was even 3 or 4 months ago. The yield is 7.47%.


These companies and index mentioned in this column and previous ones are all good buys, the common startegy among the companies that I recommend are that they have good cash flows, no subprime exposure (or minimal in the case of JP Morgan), no major leverage, good management, and the ability to expand their business even during bad times. If a company takes an earnings hit because of a slowdown, that is just a natural reaction to a recession. But if they exposed themselves to investments that cause them to hold a lot of risk, then you want to stay away from those firms.

As I told my bright broker once, "Why buy risk when you don't have to?" There are many solid companies how whose share prices have taken almost as large hits as the ones who are exposed to excessive risk. But when the bear market turns around, who who are the ones going to be standing and profitable?

There are many more companies,that you can buy at great prices.Just remember that buying what no one wants and staying away from the herd is the way too make money in the long term. This bear market will pass, not for a while, but it will. You can position yourself to make a lot of money by making the right purchases now.