Stocktake

Rock-bottom stocks for the brave

STOCKS for the long-term? Tell that to European investors.

Greece’s Ase index last week hit its lowest level in 20 years, while Spain’s Ibex hit levels unseen since 2003. Indeed, the Ibex was trading at similar levels back in 1997.

Italy’s Mib index, which superseded the Mib-30 in 2004, is trading at barely half the levels recorded back then. It’s lost 20 per cent of its value in recent months and almost 70 per cent since 2007.

Long-term investors with a strong stomach might be tempted by some European valuations. Half of the Euro Stoxx 50 stocks trade below their book value, notes Paris-based financial research firm Valquant. The index, which trades at just nine times forward earnings, also sports a dividend yield of almost 5 per cent.

The German DAX is easily outperforming its European brethren despite suffering an official correction (a fall of 10 per cent). Bloomberg notes that from January to April the seven best-performing stocks in the Euro Stoxx 50 were all German – the first such occurrence in a decade.

In fact the DAX, despite trading at just 10 times earnings estimates, is at its highest level since 1990 compared with the rest of Europe. Earnings are helping – German companies are beating analyst estimates by twice the rate seen in the rest of Europe.

All-or-nothings in serious decline

“ALL or nothing” days, defined by Bespoke Investment Group as days when at least 400 of the 500 SP 500 stocks move in the same direction as the overall index, have declined in 2012, despite a recent increase. If current trends continue there will be 23 in 2012, compared to 70 last year. That would be the lowest total since 2007 (there were 48, 47 and 52 in 2010, 2009 and 2008 respectively).

Such indiscriminate buying or selling tends to be associated with macroeconomic stress, when company-specific news is overwhelmed by broader forces.

Nevertheless, the stats reveal there is more to this subject than meets the eye. All or nothing days occurred on only 27 occasions between 1990 and 1999, and it wasn’t uncommon for an entire year to pass without such an event. Even between 2000 and 2002, when equities halved after a savage dotcom-induced bear market, they occurred on just 10 occasions. After that the number took off despite the calm markets from 2004 to 2007.

Why? The growth of exchange- traded funds (ETFs) and, more recently, computer-driven trading are obvious explanations, and imply that markets will remain prone to herd movements in the future – irrespective of the economic background.

Zuckerberg sticks to his guns and hoodie

FACEBOOK chief executive Mark Zuckerberg’s wearing of hoodie and jeans to meetings with potential investors is a “mark of immaturity”, says Wall Street analyst Michael Pachter, who said the 27-year-old should show investors “the respect they deserve”.

Former analyst Henry Blodget reckons that investors shouldn’t expect Zuckerberg, who will control 57 per cent of voting power, to kow-tow to them. Included in Facebook’s IPO prospectus is a letter to prospective shareholders which outlines that the social network was “not originally created to be a company” but to “accomplish a social mission”; Facebook makes money “to build better services” rather than building services to make money; making money is not its “primary goal”; it is going public “for our employees and our investors”.

In other words, says Blodget, Zuckerberg cares about his product, not Wall Street’s wishes. Expect the hoodie to remain.

Greek euro exit remains odds-on

WILLIAM Hill and Ladbrokes may have suspended betting on whether Greece will exit the euro this year but it’s no done deal.

A Bloomberg poll of more than 1,200 global investors revealed that 57 per cent expected a Greek exit. Meanwhile, Irish-owned prediction market InTrade, widely followed in the US, gives odds of just 39 per cent for a Greek exit in 2012, 50 per cent for 2013 and 62 per cent by 2014.