We are quickly closing in on the end of not only a terrible 18 month performance in the markets, but in fact the worst decade for stocks in the last 100 years.  Since March of 2000, the Dow has lost 27.3%, the S&P 45%, and the Nasdaq nearly 71%.  Since its peak in October of 2007, the Dow has shed ~6000 pts. and is down over 40%.

The good newsAccording to Fortune, in the nine months following every bear market since World War II, the market has rebounded by an average of 32%.  The current meltdown represents an excellent opportunity.

But where to invest?  No one can answer this question with certainty, but I’ll offer a few suggestions based upon input from several prominent economists and my own research.

1. Beaten down, quality companies There are a number of wonderful companies that are trading at very low P/E ratios.  A few examples worth considering:

  • Johnson and Johnson (JNJ) – current P/E of 12.87 (all P/E ratios are as of 2 3 09)
  • General Electric (GE) – P/E of 6.39!
  • Proctor and Gamble (PG) – P/E of 14.41
  • United Technologies (UTX) – P/E of 9.86
  • Dupont (DD) – P/E of 8.4
  • Microsoft (MSFT) – P/E of 9.95

These are all quality firms with consistent earnings and dividend performance, trading at bargain basement levels.  GE is trading at a shade over $11 at present;  6 months ago, DuPont was trading at nearly $50; today it closed at $23 and change.

My opinion is that we haven’t reached market bottom at this point, but at these prices all of these stocks are bargains – today.

2. Sectors to consider There are several sectors that should do well over the next several years, given the direction the new administration is taking:

  • Alternative energy
  • Energy transmission
  • Coal (clean coal initiative)
  • Heavy construction

Seek out quality firms – or mutual funds specializing in these sectors.  Although Caterpillar (CAT) has been beaten down badly – losing 50% of its value in the last 6 months – it should fare well if the President focuses on rebuilding the nation’s infrastructure as part of his job creation program. CAT is trading at ~$30 with a P/E of 5.3

3. Large cap global funds Those not wanting to invest in individual large caps should consider large cap funds; a few to consider:

  • T. Rowe Price Blue Chip Growth (TRBCX)
  • Artisan International Investor (ARTIX)
  • Marsico Growth (MGRIX)

Do you have any investments you’re eyeing for the snapback which will follow the current downturn?  If yes, please comment.

As always, please consult an investment professional before making significant investment decisions.

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1 Comment on Where to invest in 2009-2010

  1. Bryan says:

    With our long period of slow growth, there’s nothing wrong with avoiding the stock market altogether. If you decide to stick with a cash portfolio, then may I recommend you check out http://hugerates.com – we can help you find the best CD rates or give you a nice list to take show your current banker to ask for a rate match. Good luck!

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