So, I had a plan early last week. I was going to tell you about all the great individual stocks that were put on sale as a result of the market correction. I wasn't alone. Some guy on CNBC barked, "Look at all the Fortune 100 stocks with P/Es under 10!" Morningstar scheduled a seminar: "Find Buying Opportunities in the Market's Sell-Off." My article would run Saturday because, you know, many signs suggested the chances of a sharp rebound were pretty small.
Ah, well. You know what happened. By Friday's close, the S&P 500 had made back all the week's losses, plus a little bit of Aug. 21's decline, as well. And the article was scrapped.
That doesn't mean there aren't a few things to be written about this. Three big ones, as I see it:
Market timing is hard
Yeah, you hear this all the time, I know – no great wisdom here. But how many of you "bought the dip" Aug. 21, then watched two more days of losses? Did you kick yourself for buying too early? Or did you double down on Monday or Tuesday of last week?
Conversely, were you more like me, thinking you had all week to scour the market for opportunities – then watched as stocks raced back up, wiping out the decline? Did you use this Tuesday's losses as a second chance and take action?
The bottom line: Today might be a great day to buy. Or, ultimately, it might not be. And no one knows for sure.
The bargains aren't all gone
Despite that thoroughly inconclusive piece of advice I just gave you, I can say this: The stock rebound last week took some names off a bargain shopper's list. But not all.
Here are some numbers. Thanks to that offhand comment on CNBC, I started a screen in S&P Capital IQ to answer this question: Just how many stocks in the S&P 500 and the S&P/TSX 60 have forward P/Es of 10 or less? At the market close Monday, Aug. 24, the second of the two really bad days, there were 46, in all sorts of industries. By Friday, that number had dropped – but only to 38.
Included on that list: Big-name U.S. financials such as Goldman Sachs Group Inc., Discover Financial Services and Citigroup Inc., as well as National Bank of Canada and Power Corp. of Canada. Entertainment giant Viacom Inc., biotech Gilead Sciences Inc. and industrials such as Owens-Illinois Inc. and Eastman Chemical Co. And the perpetually underrated Magna International Inc.
Here's another example. To create their "buying opportunities" list, the folks at Morningstar took their four-star- and five-star-rated stocks, which are the ones that are trading at the biggest discount to Morningstar's estimates of their fair values. They then considered the risk to that fair value, and narrowed the list to those tagged "low uncertainty." And Morningstar also likes to look at a company's competitive "moat" – how well it can fend off threats to its business.
So that led the research firm to create a list of four-star and five-star stocks with low uncertainty to their fair value estimates and wide competitive moats. During the trading day Wednesday, as stocks were beginning their comeback, there were 22 companies on Morningstar's list. By Friday's close, only two disappeared, leaving names such as 3M Co., big pharma names Pfizer Inc. and Merck & Co. Inc., consumer companies such as Colgate-Palmolive Co. and Nestlé SA and Wal-Mart Stores Inc.
Keep an eye on stocks that could become bargains
Those names that slipped off the list as the market came back? They're the ones that could slip right back after a day like Tuesday. Names that dropped off our P/E 10 list included Bank of Montreal, Canadian Imperial Bank of Commerce and Bank of Nova Scotia (and JPMorgan Chase & Co., if you're into U.S. banks). Xerox Corp. and Pitney Bowes Inc. (which I own) also popped back up above a 10 P/E.
On the Morningstar list, Johnson & Johnson (which I also own) and PepsiCo Inc. gained just enough over the week to get closer to their value, drop their ratings to three stars and get knocked off. Both were down Tuesday; their star ratings might head back up again.
All this suggests there are high-quality names out there that are just not quite priced right for your "entry point," as analysts like to say. With the market behaving the way it is lately, share prices move quickly – and you might find a stock you like is down just enough to buy it.
But maybe not for too long. It can depend on what happens the day after.