One of the things that never ceases to amaze me is how a bear market ends. While history books will point to some catalyst, announcement or otherwise, I’ve been through enough cyclical transitions that squash this idea altogether. Nope, it doesn’t end with some grand announcement but rather almost a methodical awakening by investors that companies have simply gotten too cheap, and their irrational ideas of all the bad that may be coming, take a backseat to the newfound realization of just how many bargains abound. During the panic of Covid 2020, I saw something very similar. In hindsight, I find it amusing to hear folks talk about this decline as if it was nothing when the reality was that each and every day, the declines seem to be worse than the previous. Many investors experienced trading curbs for the first time and ‘circuit breakers’ were discovered by most to be more than just something in the electrical panel in your home. Fear was real, losses were mounting and not a single commentator, that I could find, mentioned anything remotely positive about the future.
Then, all of the sudden, on March 23 when the pandemic was in full swing, businesses were shut down, shelves were bare, markets took one last gasp and out of nowhere reversed higher. The next day the S&P closed up over 9% on the day and from then on, it was off to the races.
Looking back, many folks will point to a peak in the Covid numbers, an announcement by health care or maybe even the contrarian indicator of famed investor Bill Ackman coming onto national TV declaring the end of financial markets. However it may be written in the history books, I can tell you first hand it was nothing of the sort. It was simply a general idea, one fateful day, that companies being punished had been punished too far and the prices too cheap to pass up.
As I sit here today, the Dow is hovering around 600 points higher on the session. Other than a positive report from Citigroup, there is zero news or fanfare surrounding the bounce, yet the action under the surface is quite bullish. While I have no idea if this is the actual turning point for the market and the lows we saw in mid-June mark the end, what I can tell you is the landscape of cheap stocks has become one of the most attractive I have seen in decades. Many companies are finally on sale and wouldn’t you know it, not a single person wants to buy them.
Take Facebook aka META for example. Love ‘em or hate ‘em, the stock is now selling less than 12x forward earnings and set to grow those earnings 17%. Oh, not to mention the company has zero debt and $43B in cash…that’s not a typo…$43Billion! Do you think they are going to go out of business? Well a look at their stock price dropping from $382 down to $163 may have you believing they are. Or how about Intel, one of the largest benefactors of the billions our government will pass to aid domestic production of semiconductors. The company is now selling with a forward P/E 10 with $38B in cash…$38Billion!!!
While you may not own individual stocks, make no mistake these are the companies making up the index funds you may have of the general market as a whole. While I understand the concerns surrounding the future, the war in Ukraine, or whatever it may be the media is telling us we should be scared of that day, we’re getting to a point where companies are simply too darn cheap.
Despite our desire to have a memo letting us know when the selling is over, it unfortunately doesn’t work that way. However, just like in the midst of the Covid panic, I suspect we will see a day when investors wake up and realize the worst they’ve been expecting isn’t going to happen and all the companies they’ve sold are bargains and won’t be that cheap for long.