Posted by Jack Lee
Another bloody day for Wall Street. You knew it was coming too when Japan and Europe starting selling off sharply, then our exchange opened and the DOW and NAS both dropped like lead balloons on the same string, but at least they didn’t drop as bad as most other world exchanges.
Big financial news today about Lehman Bros…this is fueling some of the sell off. American International Group Inc (AIG) is desperate for capital and they could be following in Lehman’s footsteps. AIG lost over 60% of it’s value by early morning trading. And Wachovia dropped 22%? Wha?? Hmmm…Either WB is way oversold (super bargain fire sale stock) or they are in trouble like Washington Mutual, so far no news about WB.
Lehman Bros. (off 95%) is filing for bankruptcy after 150 years of doing business. 6 months ago Lehman stock was trading over $60 a share, today it’s about 18 cents.
Merrill Lynch was bought up by Bank of America before it went belly up. BAC paid way too much for Merrill even though they bought them for 2/3rds value. I think they could have got them for 50 cents on the dollar or even less if they had waited, but BAC was willing to pay a premium rather than to risk not buying them at all. BAC now has two dogs that won’t hunt, Merrill and Countrywide, what’s next Washington Mutual?
One wonders how long Sirius XM Sat radio will be around. They have plummeted and the stock is trading today for a mere .86 cents a share. Won’t be long before they are delisted. I’m short in this stock and have been for a long time.
General Motors is trading around $12.30 something today and I think this is probably not a bad entry point, but you better average in because this stock was trading recently at $9! Speaking of car stock, Ford stock is way off too, but the risk is higher, so even though it seems like a bargain buy at around $4.75 a share it could have significant downside.
I disparaged Washington Mutual in the opening paragraph, but for a bounce back candidate on a short term play it might work out well. They dropped 25% on the open and that is overkill in my book, even for a dog like WM. WM is strongly in the oversold category at $2.12 a share and I think it will easily recover to about $2.50 near term. From there, who knows….in 6 months it could be $3.50 or it could be $1.50, it’s a roll of the dice. What we know for sure is WM does have enough liquidity for the present and they probably will survive long term, but it will be close.
My tip for the week is ACAS (American Capital Ltd.) and GS (Goldman Sachs). Even at the worst of the market today ACAS was only off a buck and they recovered half of that as I write. ACAS is a financial, but they have better quality loans than most and take a look at the dividend. Wow…I won’t say more, just look. They are likely to pay it too! The Goldman Sachs Group is a titan among titans now and they may emerge from the financial debacle even stronger. I like GS at around $135, (it’s getting close) with a 24 month goal of $200 per share.
Now remember this all just my opinion (based on 40 years of playing the market) you should do your own homework before buying any stock and make sure it’s right for you and your risk tolerance.
NOTE: 8:55 a.m. market takes another big slide, big board is down over 305 points.