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Five Stocks to Own Now that the Dow Has Bottomed

by: Kelvin Schulle July 31, 2008 | about stocks: FSLR / SOLF / VLO / WB / WM    

Kelvin Schulle

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The market is very volatile these days, but believe it or not, the market bottomed out on July 28th when the Dow closed at 11,131. Yes, it was the bottom. In the last two years, banks were down 70-80% on average from previous highs. They should never have dropped so low (all thanks to the panic selling).

Keep in mind, we never had negative GDP and employment is strong. This is not a recession, so what pushed market to such a low level? It is the panic selling. Sooner than later, investors will realize that Merrill Lynch's (MER) CDO sale was a huge mistake, and the company should be worth much more than 24c on a dollar. That is why investors pushed the market higher after Merrill's panic sale. One thing investors should pay attention to is that the financials are leading the rally since July 28th, which is a good sign, and that is why we will see the market going higher from here.

So what stocks should investors buy here? I would buy five stocks for long term holding, which could be once in a lifetime opportunities for many of us. Two alternative energy stocks First Solar (FSLR) and Solarfun Power Holdings (SOLF); two financial stocks Washington Mutual (WM) and Wachovia (WB); and one refinery Valero (VLO).

Alternative energy is here to stay, and it may emerge in a big way in our life. Solar energy so far is the cleanest alternative energy, plus we have support from both McCain and Obama, so no matter who wins, solar will benefit. But we still need to pick the best ones.

First Solar is a thin film leader in the sector. The company reported astonishing results for last quarter on Wednesday, which is a sign to rest of the sector that solar will be a good investment opportunity. On the polysilicon side, SolarFun is the leader in terms of revenue growth. So far the company presented the best growth rate and margin in the industry. This quarter will beat Wall Street expectations by a big margin.

Financial stocks are beaten down so much that owning one or two stocks in this sector is a must in your portfolio. Look around you will see many are very attractive, but WaMu and WB are way undervalued. Both companies are in better position than other banks. They may become takeover target by big banks, such as Goldman Sachs (GS) and JP Morgan (JPM). If you hold for a long time, you will be rewarded handsomely.

Finally, refinery companies suffered from the high flying oil price. Almost all of them are at multi-year lows, and even the best refinery such as VLO can not escape disaster. However, things change fast, the oil bubble has started to burst, and we see refineries back to life again, and this time, they're coming back big in my opinion. VLO simply is the best of its kind.

Stock position: Long.

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This article has 51 comments:

  •  
    Jul 31 04:47 AM
    Oh, now it's 24 cents on the dollar for Merrill's junk? They didn't even get the 22 announced. They got about 5 cents cash. The rest is a non-recourse loan. You are a fool or a liar.
    Reply
  •  
    Jul 31 06:39 AM
    You have got to be kidding me. WB and WM are both insolvent.
    Reply
  •  
    Jul 31 06:39 AM
    I really question some of your picks. Washington Mutual is a big risk because there is a serious chance that they just are not going to make it. As far as VLO is concerned, the market has changed. With crude so high, gasoline has gone to $4/gallon. We are seeing permanent demand destruction. The US is going to small cars and, in the future, plug in hybrids and electrics. We may never see the same volumes of refinery runs again. So, this industry may be in a permanent decline. So, I would not buy either of these two.
    Reply
  •  
    Jul 31 06:41 AM
    Dow has bottomed?AHAHAHAHAHAHA... will see,but if you are wrong,i hope you will post here that you are an idiot,ok?Dow has not yet bottomed!Bottom is at 9,800!
    Reply
  •  
    Jul 31 07:54 AM
    A bank selling first mortgages for 22 cents on the dollar is panicing too. This implies that a foreclosed home is only worth 22 cents on the dollar. Are there any posters out there willing to sell me their home at 22 cents on the dollar value of their mortgage?
    Reply
  •  
    Jul 31 08:05 AM
    squashnut, I believe he said MER was selling for 24 cents on the dollar, and the stuff they sold was 22 cents on the dollar - read twice before giving opinions
    Reply
  •  
    Jul 31 08:06 AM
    Trying to find a bottom in financials = best investment strategy ever.
    Reply
  •  
    Jul 31 08:24 AM
    MER sold securitized tranches at an average of 22 cents on the dollar, not mortgages. Depending on seniority of the tranches, some are worth full value, others may be worthless. This article contains a decent description of the securitization process. MER obviously held a big slug of junior tranches.

    www.moodys.com.br/bras...
    Reply
  •  
    Jul 31 08:26 AM
    I love all these guys calling the bottom. The editor is probably listening too much to the high idiot of investing Jim Cramer. He has called the bottom about 5 times since August of last year.
    Reply
  •  
    Jul 31 09:04 AM
    Well the jobs numbers don't look good. It looks like we aren't or wer in a recession, but it looks like it's comming, so the dow will need to lose at least another 1000 before you can call the bottom.
    User 235322 has probably got it right, but I am supershort but that's super duper short.
    Reply
  •  
    Jul 31 09:10 AM
    but they called it "super senior"
    Reply
  •  
    Jul 31 09:20 AM
    what an idiot!
    Reply
  •  
    Jul 31 10:10 AM
    Take it easy! Right now it's just an opinion and it's as right as yours.
    Reply
  •  
    Jul 31 10:32 AM
    Only pick i agree with is SOLF.

    FSLR is overpriced where it is. I can't believe a 300 stock is ever a generational buy. besides, their technology uses toxic ingredients and there is talk about outlawing it in Europe.

    Buying WM or WB is a recipe for disaster. The only reason WM isn't in receivership is because they have not been forced to acknowledge their losses on 2nd mortgages and exotic firsts. WB isn't in much better shape. You're looking to get wiped out on either of these.

    Can't speak to VLO, I don't really follow the oil sector.
    Reply
  •  
    Jul 31 11:07 AM
    I think our author is a little optimistic...............
    Reply
  •  
    Jul 31 11:36 AM
    Oy vay! BUY, BUY, BUY.....The bottom has arrived! ...or I need to keep my job hyping crap securities. Let's see you tie your future to those turkeys. Oil is king and 'Here come the sludge!'
    Reply
  •  
    Jul 31 01:01 PM
    The author may want to change his opinion about negative GDP growth based on the latest numbers. And how does he arrive at the 24 cent estimate for MER?? And WM??? A bank that does not project any profits for the next 2 years?

    This has to be the dumbest article on SA this week.
    Reply
  •  
    Jul 31 01:18 PM
    Yes, please buy now so the author can get out of his positions!!
    Reply
  •  
    Jul 31 02:03 PM
    what about csiq,i hold positions in this stock.
    Reply
  •  
    Jul 31 02:19 PM
    With such a strong neg feeling from commentors, it makes me think it is time to think about adding.

    time to double down, or sell half.... So much fun.
    Reply
  •  
    Jul 31 03:09 PM
    I think this guy actually is smart when it comes to banks-any person knows that the bigger banks are just trying to push WM and WB out of the picture by rumors and negative press so they can greedily come in and take over the work they've done over the years.
    Reply
  •  
    Jul 31 03:57 PM
    if that turns out to be the bottom let's all come back and remind some of these commentators like user235322 what idiots they are.
    Reply
  •  
    Jul 31 04:50 PM
    Jim Gamer is calling it a Bottom but you know that good ole Jim hasn't bothered to inform anyone what his record has been over his show Biz career...I'm not talking about how much up/down, just the number in Each direction. He's like a blind squirell.

    Anyone remember Joe Granville?
    Reply
  •  
    Jul 31 04:54 PM
    This is only the second leg to the downside. The worst is yet to come. Joe G. says 9,000 before the end of the year. Cramer should bring his wife onto his show. Would show who has the brains in the family.
    Reply
  •  
    Jul 31 05:38 PM
    Regardless of whether the DOW has bottomed or not this is good time to buy alternative energy. I can't comment on the financial stocks you recommend as I know nothing about them, but solar is happening and is here to stay. In the past solar depended too much on subsidies and/or the cost of traditional forms of energy. That is no longer the case. So solar's recent sell off offers a good time to get in as it is one industry that will fair better than others (financial is one that comes to mind).

    One could argue that every sector will be affected by financials since liquidity and credit drives business but still some will be more affected than others. I think solar energy is now viewed as a great long term investment in energy across the globe and no longer some speculative investment....

    In short, I concur on SOLF and lots of other good undiscovered alternative energy related stocks out there. Consider SATC as well. Do your own research and good luck.
    Reply
  •  
    Jul 31 06:55 PM
    SOLF, prehaps VLO. Dow has bottomed? I don't think so.
    Reply
  •  
    Jul 31 10:46 PM
    I'd be disinclined to bank on Schulle, regardless of wherever he hangs for his information; no matter where he resides.
    Every sector affects each and every other one.

    Hmm, sheer coincidence Schulle chose to hype SOLF, for example? The same stock pick used by $500,000, very recent prize winner of the CNBC Portfolio Contest. Of course, the winner was "playing the game for fun and going for broke", he explained in the interview.

    On banks-- unless one is inside with privileges information, we're all looking at very old data (end of March 2008 and provided by BankRate). We may sleuth/read here and there the statistics on each bank's "trimmed" assets, however and unfortuantely those assets have only continued to erode as piles of foreclosures mount and grow into dismal, disconcerting mountains. Looking at the 3/2008 latest reported CAEL for Wachovia and Washington Mutual respectively, BankRate states these institutions reported net losses representing an annualized return on assets as follows: (Wachovia: -0.22% ROA and a two star soundness rating) ;and (Washington Mutual: -1.34% ROA and, yikes, a lone star soundness rating). And, these have been shored by loans these banks have obtained!
    Just as we, living in the "Golden State," observed Indy Mac hawking CDs at 4.2% APY in April when no one else was, not surprisingly we see Wachovia and Washington Mutual now pleading for CD investors to "come on down" for 4.25% APY. It is VERY, VERY quiet inside and outside these banks. One could almost hear a pin drop inside with no waiting lines of course, and there certainly is no shortage of parking spaces in their lots.

    Maybe Schulle can sell hot pretzels with grainy mustard on the Jersey shoreline or at the Santa Monica Pier with...a little more credibility.
    Reply
  •  
    Aug 01 01:39 AM
    WaMu could tank. Nibble only at WB, which also could tank. VLO is a non-starter. FSLR is "I hope, I hope" kind of stock, with a spec. edge. Five for the future? I doubt it.
    Reply
  •  
    Aug 01 01:46 AM
    2arose is right about the CDs. WB's ad for the 4.25% CD reads "Back by Popular Demand." A better title might be "Gone in Sixty Seconds!"
    Reply
  •  
    Aug 01 01:55 AM
    I don't know what state you been visiting. Here the lines are as long as ever. Most have checks in their hands suggesting deposits not withdrawals. I think Schulle is right on target. I don't trust the shorts arguments about the financials cause they painted themselves into the corner and can't get out. Just take a look at WM revenue for the quarter 20B on a solid portfolio of 176B that better than 10%. The one time write offs are book entries and not actual losses. They are set aside incase they have losses. This money still earns them revenue where its at.
    Reply
  •  
    Aug 01 11:26 AM
    Jackdee. "With such a strong neg feeling from commentors, it makes me think it is time to think about adding.

    time to double down, or sell half.... So much fun."

    On the contrary Jack, We are the voices of reason. Everything these bubble heads have said, especially Cramer has been wrong. If you listen to these guys you will go broke. There is no reason to ever double down on a falling stock, sure way to get crushed. Although doubling down on a short stock works much better.

    To Akapital: Alternative energy is dead in the water. Solar panels for the most part will never be bigger than where they are now in their present form. They are way too expensive and they need a tremendous amount of surface area to produce at like 15% efficiency. (SPWR claims their panels are 22% efficient, but that's under 'ideal' conditions that you will very rarely see). Wind power is cheap and unlike solar can produce even at night. Wind is a better play but GE and the larger firms have that locked up. Ethanol? Yep that's about as good as a three dollar bill now. Nuclear power is going to be in our near future. It is clean safe and very efficient. Nat gas may be the fuel for our cars soon also.

    Anyway, this article is like the numerous ones here, pump, pump pump. But the naked shorts are the bad guys. A fool is soon parted with his money. So any fool that buys into these pump jobs deserves to lose his shirt.

    Reply
  •  
    Aug 01 05:41 PM
    Waiting to see the election results before investing a dime in anything at this point. Whom controls Washington decides the fate or acceleration of many sectors.
    Reply
  •  
    Aug 01 06:00 PM
    I bought FRE yesterday, and I’m down 10%, you think is better to wait or get rid of them now??
    Reply
  •  
    Aug 02 09:20 AM
    Actually buying Altria and Berkshire will give you a much higher risk reward ratio.I wouldnt touch any of these stocks but Valero
    Reply
  •  
    Aug 02 11:09 AM
    To Jack Matalka: I told you where I live: California's nickname IS the "Golden State" and I also stated where I got my data: Bank Rate, which rates the banks, thrifts,etc. and everyone from Chase, with the maximum five stars for soundness to WM with their one (1) star for the same. These star ratings are not static --they actually change based on VALID information. Second quarter earning were are not yet posted as I entered my comments. I do know Barron's reported WM got a huge loan to prop up their capital.
    You do not say where "here" is--the place you describe and tell us people are standing in line to make deposits rather than withdrawals. Your response also does not tell us the source of your WM numbers.
    Supershort may be right on regards alternative energy. Watch what happens to photvoltiac panels when the federal and state incentives disappear for the Solar Initiative at the end of the 2008. The hype of a lot of startup companies has a good many of their consultants arrive at a site without so much as a pathfinder to measure sun/solar expectations/cloud cover etc. at all times of the year.
    Europe is way ahead of us with this product. Some companies selling here will provide you with an analysis of output for all the months of the year one can expect based on a certain watt system, reporting summer months in AC and winter ones in DC.
    Hel-lo, the current that counts is AC. By noting results in "DC" they make a case for photovoltiac appear to look better. So much for tricks of the trade for the uninformed. Wind power requires 100 foot towers--try that on a residental lot where land is expensive or in urban industrialized areas--takes up quite a chunk of land.
    Reply
  •  
    Aug 02 09:38 PM
    Why do people want to make a name for themselves to the THE ONE to call the bottom?

    Puh-leeeeze. Facts.
    Reply
  •  
    Aug 03 02:32 AM
    HIDING IN THE CORNER WATCHING AND HEARING ALL THE RANTS,...LEARNING ,..AND SOME ROLLING OF MY EYES,...GLTA ..
    Reply
  •  
    Aug 03 02:18 PM
    Where's Greenspan - he should be accountable for some of this mess in the housing market.
    Reply
  •  
    Aug 03 06:38 PM
    Did I by accident find myself on Yahoo Message Boards?
    Well, perhaps not as no one so far has used four letter words and longer ones that usually end in "er" and are oftentimes preceeded by a reference to one who gives birth.
    Come on people! A little class here!
    Agree or disagree, but show some respect.
    We are all entitled to our opinion AND if there is anyone here who believes (including any and all contributors) that a posting here can effect the price of a security, I would suggest to them that they take prep classes to obtain their GED.
    Yes .. attempting to call a market top or bottom is Cramerish (need I say more?), but I appreciated the contributors comments on individual stocks.
    CIAO and God Bless America!
    Reply
  •  
    Aug 03 07:58 PM
    As advised previously stocks that should be purchased should have market caps over 30 billion with large moats and PE ratios under 15
    Reply
  •  
    Aug 03 09:44 PM
    WM has $52 B of negative amortization loans on their balance sheet. WB has $120 billion. What are your projections for loan losses for this product? Without more detailed analysis into the bank's balance sheets, I don't think one can do more than make a bet.
    Reply
  •  
    Aug 03 10:33 PM
    "Now that the Dow Has Bottomed"

    BUZZ.... oh, i'm sorry, that's the wrong answer... thank you for playing... you are welcome to come back and try again in 6 months.