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Getting Back Into the Water


Start looking again at some of the great companies investors sold off in the last couple of weeks as they watched profits disappear.

I think most of us remember Al Pacino's first movie "Panic in Needle Park". It was about a heroin addict always looking for his next fix. He would lie, cheat and steal from everyone to accomplish his goal. The market action this week forced me to revisit this movie.

As long as the market perceives the Fed is on its side ready to satisfy any need for a liquidity fix, investors have the mojo and confidence to aggressively buy and pick up bargains. As soon as the high wears off everyone is looking for the dealer.

I think yesterday's interview of Angelo Mozilo, the CEO of Countrywide Financial (CFC) reinforced fears that things may be worse than we think. I doubt anyone believed Angelo's comment: "…It is a win-win situation…" It may be win-win for Bank of America (BAC) but I know I for one feel it must have been facing a liquidity event to accept these terms. I am sure it was disconcerting to watch S&P Futures swing 25 points from Wednesday evening's high to Thursday's lows. Many of the Minyanville professors picked up on this as a probability and saved investors a lot of money not buying into the BAC, CFC news too early.

Last week's Fed euphoria is becoming a memory. Start looking again at some of the great companies investors sold off in the last couple of weeks as they watched profits disappear. We all did it so own up to it. Unless the fundamentals have changed we have to go back to some of these names. My recent comments poised the question "Who is on Point?" Where is the leadership going to come from? Will it be stocks like Micorsoft (MSFT) and Pepsi (PEP) or some of the stocks I am about to mention.

I know the oil service sector has come a long way in the last few years and oil is at or below 70, but unless you feel there will be a world wide recession how can we pass up an industry with stocks trading at single digit multiples.

Transocean (RIG) and Noble (NE) both fit the bill with huge growth this year and next. RIG is expected to earn $11.41 next year. That is 43% growth on the bottom line from a 2007 number of $7.93. Even if I give that estimate a 20% haircut you still end up at 11x with 15% growth. This analysis is even more compelling for NE. Take a good look at these stocks if you aren't involved.
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No positions in stocks mentioned.
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