Entering The Buy Zone

As I had hoped in earlier posts, stock prices have dropped a bit. Sun is back below $4 and in a good buying range. Anheuser-Busch is flirting with $51 and might, just might, get back below $50 in time for you to scoop up shares before the next leg of the rally kicks in. Altria is just 57 cents above $40, my recommended buy threshold. It’ll take a pretty powerful downdraft to send these solid companies down much further, so they might not hit the targets, but they’re getting close.

I want to add one more to the list I provided on September 6. Washington Mutual is probably America’s best-managed bank. It’s growing strongly and has all the markings to be the Wal-Mart of its industry. Bill Nygren, the well-respected value investor, likes the stock so much that it constitutes some 18% of his Oakmark Select mutual fund. It’s easy to see why. Despite the stock’s strong fundamentals and sustained growth, it trades at a P/E of just 8.75. The price is now $37. It dipped below $30 a year ago, but I think the best we can hope for now is a quick snag below $35, and even that’s a long shot in this excited climate. The last time it was below $35 was in March. However, it rose to $44 in June and is now down significantly from there. So, keep an eye on it. Long shots sometimes come through.

A word about Sun. It’s not a strong company. Bill Joy, one of the leading lights from Sun’s founding days, recently left. He still owns a boatload of stock, but his departure signals lost enthusiasm. Sun, like Apple, clings to proprietary technology in a world that is moving steadily toward open technology. It’s the reason PCs beat Macs despite Macs being superior at almost every step of the way. The move to Linux from Windows is probably Microsoft’s biggest challenge. With Sun, companies are opting for workstations from the likes of Dell, HP, and IBM with chips made not by Sun, but by Intel. Meanwhile, Java, Sun’s hope for a Microsoft-like software monopoly on the internet, has bumped up against Goliath himself in the form of Microsoft’s own .NET platform. It’s hard to imagine a more formidable set of foes than the ones aiming their swords at Sun.

Why, then, do I continue to follow the stock? Because it’s been beaten down mercilessly because of the above. I first bought it last fall at prices under $3, enjoyed the run-up to higher than $5 in June, and am now waiting for a repeat performance. The company is not worthless and has a fighting history behind it. Few names say “internet” as boldly as Sun does. There is value in the company and trading possibility in the stock. I don’t know that it will get back to $20 or $30, but I’m quite sure that it’ll get back above $5. Buying stocks under $4 that rise above $5 is an activity I’ll undertake any day. But make no mistake about the company. It’s no Anheuser-Busch.

Here’s a recap:

  • Sun Microsystems – buy under $4
  • Anheuser-Busch – buy under $50
  • Altria Group – buy under $40
  • Washington Mutual – buy under $35

    If you don’t know what to buy but want to guarantee yourself a place at the rally table, consider my Doubling The Dow strategy. It’s had a good run.

    Finally, here’s a piece from BusinessWeek Online about the near-term positives for the market. I hope they kick in after we buy our targets.

    Enjoy the weekend.

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