Building A Position In Sun

I bought about half of my target position in Sun Microsystems last Friday at a price of $3.60. It closed at $3.51. I believe we’ll see even cheaper prices during August. If so, I’ll buy more.

In down times like these, it’s easy to get scared away from stocks. The jobs report was awful, oil is expensive, terrorists are plotting a pre-election attack, and we don’t know who the next president will be. These jitters happen periodically in the stock market and are the very reason we get good opportunities to buy at low prices. However, most people don’t take advantage of the buying opportunity because of the attendant bad news.

In case that’s you, I’ve collected a few items to give you hope that the market will rise again in the future. As an aside, on any given day in any given market environment, I can find articles for you saying that the market will rise and I can find articles saying that the market will fall. I can point to an expert saying that you should buy; I can point to one saying you should sell. You need to educate yourself to ignore the so-called experts and arrive at your own conclusions about what is a true risk to your money and what is a sensational headline. You need to know what price is cheap for a stock based on its trading history, its business performance, and recent developments. You need to know what matters to you.

Nonetheless, in case you’re new to this or just overly focused on the storm clouds, below are some articles that see blue skies ahead and may give you the confidence you need to place your money on the line now, when prices are cheap. Don’t wait until December to look back at summer and wish you’d done something.

Profits Are Strong

The Standard & Poor’s 500-stock index is on track to post an earnings increase in excess of 27%, with 8 of the 10 sectors posting actual quarterly results that top earlier estimates. In addition, full-year 2004 estimated results have improved as well, with a 21% advance projected for the “500,” a 24% gain for the S&P; MidCap 400, and a 37% jump for the S&P; SmallCap 600.

What’s more, these stellar second-quarter performances weren’t just the result of belt-tightening efforts. S&P; estimates that sales for the period increased 11% for companies in the S&P; 500.

But in the long run, maybe the best catalyst for an upward move in the market will simply be the passing of time, allowing many of the things investors are worried about — terrorism concerns surrounding the Republican convention and the Olympics, combined with the results of the upcoming U.S. Presidential election — to have come and gone. Maybe, just maybe, investors will be able to focus purely on fundamentals once again. Read the whole article…

Bull Speed Ahead

I don’t see the economy going into a hole, and equity valuations are very cheap. After Thursday’s slide back to the bottom of the range, the S&P; 500 is about 27% undervalued, according to my model.

If you don’t believe me, just think about a couple of facts. As of Thursday’s close, the S&P; 500 was 1% lower than where it was on Sept. 10, 2001 — the last night the World Trade Center towers still stood. Yet today, actual trailing 12-month earnings for the S&P; 500 are 27% higher.

There’s no two ways about it: Stocks are cheap. Could they get cheaper? Sure. But when values look like this, the smart bet is in the other direction. Read the whole article…

Expect A Rise In The Fall

We’re still looking for a good year. We think that when we close the year, GDP growth is going to be near 6%. Part of that is because productivity is so good. The other part is that we think the job growth will be there to improve the hours worked, which will translate to about 2 1/2% GDP growth, and the other half, we think, will come from productivity.

I wouldn’t say the market is going to come back strongly, but I do think we’ll end the year where stocks will have generated positive returns, high single-digits, maybe 10%, and bonds will probably have generated flat to negative returns, because the Fed has just begun to raise interest rates, and that’s going to continue. Read the whole article…

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