« Lock and load, Wed., Oct. 26, 2005, 6:05 AM | Main | Yearning and pining (expletive deleted), Wed., Oct. 26, 2005, 12:23 PM »

October 26, 2005

Looking for bright spots in the Dow, Wed., Oct. 26, 2005, 8:57 AM

MarkM thinks my early articles were dark, dark, dark". But that is precisely my point. If you are a buyer, you wait until the mood on the selling side is darkest. You are supposed to be looking for good companies whose stock prices are depressed, and therefore irresistible.

In any case I'm going to give you eight Dow stocks that I have been looking to accumulate. That means I'd buy the spike as it was driven into the floor. Otherwise, I would be writing puts at lower strike prices to take in premium, and perhaps have traders later give me those stocks at those strike prices.

Take Alcoa (NYSE: AA) for instance. AA closed yesterday at $23.75. I'd buy it at $22.50, with a 12-15 month target of $35. My target would be based on a reasonable PE (in an inflation cycle) of 18 times the Value Line 2006 earnings estimate of $1.95 to give $35. That would be a price growth of +55.5 pct, which with a dividend yield of +2.5 pct (or more) would give me a Total Return Objective (TRO) of +58 pct in 12-15 months.

In my book that +58 pct TRO for AA is irresistible.

Here are a number of other Dow components I like: (in alphabetical order) AIG, DD, INTC, KO, PFE, WMT and XOM.

Not all, but many of these companies are on the Cara Global Best 100 Companies list.

Here are the price charts:

Early this morning, the Dow futures were up about +25, and yet I was dour (according to MarkM). Right now, the Dow futures are "29. That's because as the equity traders have gone to work they cannot overlook what is happening in the bond market (now that's dour!).

So this is the time to be looking for the stocks to be sold off, and to be putting some of good ones into your crosshairs.

If somebody in the White House is indicted today, it shouldn't move that gun of yours one inch. You are aiming for profits in the form of a Total Return a year out (or more) on the stock prices you knock off presently. Two or more years from now, you will be laughing at today's yada, yada, regarding events in the White House. It simply won't matter.

What will definitely matter a year or two from the present, however, will be the low, low prices you were able to buy in a group of really solid companies.

So get your ammunition ready, and have your gun locked and loaded.

And when the last skirmish is over and done, there will be other good quality companies that you will find given to you for the taking at really attractive prices " Dow companies (in alpha order) like C, DIS, GE, HD, JNJ, MMM, PG, and others.

The top-rated capital managers at the biggest mutual funds in the world will hand these stocks to you. Why?... because they are human, and they are wrapped up in fear and greed.

And Bill Cara will be helping you buy. Why?... because he's a mechanic who has been well trained for the job. :-)

Posted by Posted by Bill Cara on October 26, 2005 08:58:25 AM | Category: U.S. Equities

Discourse