Weak.

Remember last week when I said I expected the market to come off a little bit from the recent buying spree, and that it was healthy for the market to behave in such a way? Well, it did, and it was. I expected the market to (hopefully) bounce up again afterwards. It did.

But until Thursday, it has done so with about as much conviction as a handshake from a crying three-year-old.

The market’s behavior in the past month or so has closely resembled that of the “bouncing ball” experiment that most of us did in science class. Each time the ball bounces, it reaches a lower and lower high point as it loses energy. The market doesn’t succumb to gravity the way the ball does, but it does surrender to time. Time breeds impatience, especially for investors holding stocks and being inundated with bad news.

In this day and age, instant gratification is demanded. We cannot wait for weather or news, so instead of turning to the morning newspaper, we scour the internet. We cannot wait to receive messages or e-mail at home, so our fingers are constantly attacking our iPhones and Blackberry devices. As the markets have become faster-paced, our mentality has become one of growing impatience. Which, in turn, translates to investors’ collective need to be shown returns quickly or sell out. It’s this very phenomenon that exacerbated the extreme volatility we saw in the fourth quarter of last year.

How much endurance do we have?

Patience is a virtue. How virtuous is America?

To restate my position last week, this market needs a serious bounce… I’d say a string of a few days that lead us about 500-700 points higher in the Dow before I believe the buying is more than a mood swing.

Today looked like a good indication that this is possible. There needs to be some buying to light the herd mentality fuse, and hence providing investors with a reason to stock up (no pun intended) once again. However, today’s move was just enough to leave me hopeful, yet unconvinced. As we bounced hard near the 7800 level in the Dow, it looked as though we could be bucking the downtrend a little bit – however, a few purchases do not a bull market make.

We need another few days of this… or one huge day would work as well.

Individual Stocks? That’s right, I said it.

Finally, after months of uncertainty (coupled with frustration, exasperation, and finally apathy), I am once again beginning to analyze individual stocks. Some interesting events have transpired in names we have come to know and love, and it’s time to begin considering which, if any, are worth the price to which they have precipitously fallen.

First up: GE-whiz.

What a ride it has been. This stock has been absolutely destroyed in the past month. On January 5th, it was trading in the low $17s, and today it hit an intraday low of $10.66 as the market temporarily bottomed out. Though the market tended to follow GE for most of its life, lately the reverse has been happening – only with more selling pressure than the overall market. It has been bouncing with less enthusiasm and selling with more, consistently putting in new 52-week lows.

Here’s the thing: the stock is paying a dividend, one that its cash reserves should be able to sustain for at least a little while longer. That dividend ($1.24 per share), because of the price, is resulting in a dividend yield of about 11.5 percent. That’s wild.

The company is massive… even at these emaciated prices, it boasts a market cap of over $116 billion, and is well diversified. It will not skyrocket to $28 as soon as things turn around, but as it bounces off its circa-1995 prices, one might be interested in slowly building a position around here. As for the upside potential… just an fyi – there’s currently 142.5 million shares short on this thing (about 1.5% of the float). Wouldn’t it be nice to see them squeezed…

Next: Soon-to-be-the-only Bank of America

The failure of a major bank used to be news. Now it’s just trendy.

There is now some talk about the possibility of Bank of America joining the growing list of failed entities, and subsequently being nationalized next week. This caused the stock to be bent over during the early morning session, as was most of the market. However, as the day wore on, BOA rose from $3.77 to close at $4.84.

Let’s look at this situation objectively. There are dozens of reasons I could give you either way as to why this nationalization is or is not going to occur. I must disclose the warranty on my crystal ball has lapsed, though I suspect that the government doesn’t want to put the socialization mask on at the risk of scaring the nation, and therefore it’s my personal opinion that the bank will be helped, but not… well, confiscated.

Financially, the stock is trading at one-fifth of the company’s stated book value. Their deposits represent nearly thirty times their current market capitalization. What does this amount to?

It amounts to me admitting that a long trade in this stock would be a bet, but one of the better bets available. What’s the downside? Less than $5 per share? (Unless you’re as savvy as a colleague of mine who picked some up around 10am Thursday at $3.86 per share). More importantly, should the bank not be nationalized and join the market’s eventual turnaround, anyone taking a little risk will have purchased the stock at a price that may very well never be seen again. After all, with every bank that fails, there are fewer and fewer left to purchase when the sun comes out again and investors get the financials fever – which bank stock would you buy? Just a thought.

All in all, if we don’t see positive, convincing move in the next few trading days, we’re looking at the very real possibility of the bottom falling out. I hope not, but what I’ve hoped and what has actually happened have not always mirrored each other.

John K. Whitehall
Analyst, Oxbury Research