With the unwinding of the real estate market along with the many of the large financial corporations, the domestic investment markets have been challenging. From the title of this post you could get the feeling I’m going to pontificate the benefits of investing in gold. Wrong.
I’m not saying you shouldn’t invest in gold. Gold should be part of every portfolio of longer term investments. Today, as everyone is running to the safety of cash and bonds, there are some bargains to be had in the stock market. Quality large cap companies selling at low multiples.
In the early ’90s International Business Machines (IBM) was feared going out of business and their stock was selling for less than $5 per share. Apple Computers (AAPL) was loosing market share to Microsoft Windows (MSFT) and everyone thought Apple was doomed? How about Bank of America (BAC) today at less than $6 per share?
I am not saying invest in a business that is going under. I am saying there are periods in history that large, viable companies get caught up
in market forces. Shares of Coca Cola (KO) were selling for less than $40 per share in March of 2009 at the height of the financial market meltdown.
When everyone was running for the exits, a great opportunity presented itself. The stock market today presents a few investment options better that cash or bonds.
Don’t get me wrong. Cash is king. Every business needs some amount of cash on hand or at least an available line of credit. Assuming your business has cash to invest in the market with an investment horizon of 10 to 24 months, investigate what is available in the market. Many DOW stocks are at year to date lows. Because of their low price they are currently paying attractive dividends.
Look not only for the dividend percentage but also the company’s ability to pay dividends. What is the amount of cash the company has on hand?
A company’s past dividend dividend payment as a percentage of the stock price may artificially appear high because the stock recently lost a third of its value. Understand the price action of the stock.
If the price of the stock declined recently because of news about the company, is that news related to the company’s ability to generate cash? Has the company’s management forecast a slowdown with their business over their next few quarters?
Another thing to consider is “What the company do with their cash“? Does the company have a history of raising their dividend or buy back their issued shares of stock? One affects the price of the stock. One affects the money in the shareholder’s pocket. When they generate additional cash from operations what do they do with it?
My next post will examine stock trading versus longer term investing in stock. Trading, unlike investing, provides the ability to 
profit in an up or down market. Regardless of the dividend a company pays, it’s stock price might move a significant percentage over the course of a day or week.
Trading of stock may occur changing your the stock position in your account, multiple times per day. Yes, hopefully each time generating profits for your business.
So, if you have cash to invest don’t shy away from the market. It is easy to find stocks paying high dividend rates that are safe. You can find many stocks from growing and cash rich business. These stocks are selling at historically low multiples.
Buying stock today in sound large companies, what a golden opportunity!
