By Barbara Kollmeyer
Hoping for a bear killing October ? The month looks ready to kick off with gains, as the stock market appears ready to shake off a few troubling headlines.
Tesla shares are tumbling after not-good-enough quarterly sales, and another crisis may be brewing over the health of a big European bank. But investors seem modestly impressed with efforts by the U.K. government to put out a market fire it started recently.
To be sure, a never-ending supply of crisis headwinds may make the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.75% work even harder to find its true bottom. That brings us to our call of the day , from Miller Tabak + Co.’s chief market strategist Matt Maley, who sees Google parent Alphabet /zigman2/quotes/202490156/composite GOOGL -1.30% as one of the best oversold names to start buying right now.
He admits that the overall market doesn’t look that cheap yet, while Alphabet faces some headwinds, but its search engine business “is still a monster…with ad sales growth of more than 13% last quarter.”
The stock trades at 17 times forward earnings, and 18 times reported earnings, he notes. “Since the company went public in 2005, it has only been cheaper at the bottom of the Great Financial Crisis and after two dips in 2011 and 2012, during the European crisis of that time (Greece),” said Maley.
So how to do this? Maley suggests buying the Google parent gradually over the coming months, similar to “dollar-cost averaging” — investing a fixed amount in a security or asset on a regular basis, no matter what market are doing.
That strategy works well when companies get cheap and is an excellent one to use during bear markets, “especially after the ‘bear’ has already done a lot damage,” said Maley. But the stock of a good company can get even cheaper before it bottoms, which is why they need to buy gradually — for individual investors that may mean once a month for nine to 12 months.
The average price of Alphabet — down nearly 34% year to date — should look good a year from now and even better in three to five years, because decent names that get tossed out in a bear episode often rally back stronger than the broader market in the years after, he adds.
Note, the strategist is a firm believer that more froth needs to come out of this market, possibly another 15% into the low 3,000s for the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.75% . The market had gotten too pricey versus the economy, which “had become pushed to a level that it could not maintain without steroids.”
“It has to get back in line with the underlying economy…and the underlying economy has to get back in line the growth it can maintain without artificial liquidity. Don’t fight the Fed,” says Maley.
Stocks /zigman2/quotes/210599714/realtime SPX +0.75% /zigman2/quotes/210598065/realtime DJIA +0.55% /zigman2/quotes/210598365/realtime COMP +1.13% are higher, with Treasury yields /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y -0.43% /zigman2/quotes/211347045/realtime BX:TMUBMUSD02Y -0.32% dropping. The British pound /zigman2/quotes/210561263/realtime/sampled GBPUSD +0.4332% is hovering at pre-crisis levels and gilt yields /zigman2/quotes/211347177/realtime BX:TMBMKGB-10Y +0.47% are down after the U.K. government’s U-turn over a heavily criticized budget move . Oil prices /zigman2/quotes/211629951/delayed CL.1 +0.81% are surging on hopes for a cartel output cut this week, with gasoline prices also shooting higher, but natural-gas prices /zigman2/quotes/210189548/delayed NG00 +0.45% tumbling.
The Organization of the Petroleum Exporting Countries and Moscow-led allies, aka OPEC +, could cut production by more than 1 million barrels a day — the biggest since the pandemic began — at Wednesday’s meeting.
Celebrity Kim Kardashian has been fined $1.26 million by the SEC for touting a crypto without disclosing she received a payment.