D4

By Greg MacPherson

Stumble Upon

del.icio.us

Digg

Facebook

Print

Email

Speak Up

Are the stock markets broken? Is the economy forever unable to correct itself?

The quick answer is: no. To put it mildly, there have been excesses and systemic problems that are now rapidly being corrected.

Remember, however, the markets tend to go too far in both directions. I am seeing lots of instances where the proverbial baby is being thrown out with the bath water. Don't get me wrong, there are some very real problems going on, but I am seeing lots of really good solid money making companies that are trading at extremely good valuations. That doesn't mean they won't go even further on sale, but emotional trading has taken place and, as investors and institutions deleverage, the good companies are being liquidated along with the bad ones.

Imagine, if you will, that aside from your own home you own a second property. Let's assume it is a very nice well-constructed house you rent out for a lot of money every month. In fact, it is an incredible property that pays you very handsomely. As we all know, the housing market goes up and it goes down. There are certainly bubbles in this market that sometimes collapse.

What if a real estate agent or appraiser came by once a month and reminded you the market value of the property has been going down a lot recently along with the general decline in the housing market. Would you worry about it and sell the property before it goes down any further, or would you simply tell the appraiser to stop coming by and that you intend to hold this very lucrative property for a long time. The answer, of course, is the latter and, if you didn't already own it, it would seem like an even better buy now.

Well, there are many companies out there with very solid balance sheets that continue to make billions of dollars and pay excellent dividends. Unfortunately, the market perceives the values of these companies to be less than what they were a few months ago.

Should you sell them, hold them or buy some more?

The answer for most people will be to simply hold them, or if your situation warrants it, you could buy in moderation.

Considering the market is where it is today, who is going to profit going forward? Although there are many areas I think will profit, such as infrastructure and private placement debt, I think it will simply pay to hold quality money making companies.

As I mentioned, there are some solid balance sheets out there that continue to pay excellent dividends to shareholders like certain Canadian bank stocks, insurance companies, utilities, and energy companies.

Most of the big banks in Canada are paying a dividend of anywhere between four and six per cent. Not a bad return while you wait for the shares to go back up. As another example, I know of a large integrated oil company that is trading at only four times what it earned last year.

There are several other examples of companies and areas of the economy that I think are going to prosper going forward. It doesn't mean they won't go further on sale or that there won't be other bumps in the road, but for anyone thinking long term who isn't panicked, this could very much be an opportunity.

The opinions expressed are those of the author and may not necessarily be those of Manulife Securities Incorporated, Member CIPF. Greg MacPherson, BBA, CFP, FMA, CSA, FCSI is a financial advisor in the Woodstock branch. Contact his office with questions or to book an appointment: 328-8889.