Geoff Gannon January 21, 2006

On Friday’s Price Drop

Prices on stocks were reduced Friday, making them slightly more attractive. Sadly, many of the biggest price reductions were among the most expensive issues. For instance, Google’s stock price dropped by almost 8.5%. But, we’re still talking about a hundred billion dollar company. Google (GOOG) is trading at something like sixty times next year’s earnings.

Based on yesterday’s news, you might think all stocks had gone on sale. Sadly, that’s not the case. For instance, shares of Village Supermarket (VLGEA) will now cost you about 2.5% more than they would have on Thursday. However, some other companies I mentioned did go on sale: (OSTK) fell 3.16%

Posco (PKX) fell 3.01%

Journal Register (JRC) fell 2.84%

Home Depot (HD) fell 2.69%

Energizer (ENR) fell 2.43%

American Eagle (AEOS) fell 2.29%

Gannett (GCI) fell 2.03%

It’s always tempting to take a new position at a time like this. But, remember, even among the hardest hit issues, Friday’s price decline was small compared to the margin of safety required for an intelligent investment. I’m only mentioning Overstock, Posco, Journal Register, Home Depot, Energizer, American Eagle, and Gannett, because they already looked promising. Gannett makes the list more because it’s a well known name than for any other reason. Despite the higher debt levels, Journal Register looks more attractive than Gannett, because of the type of properties it owns.

Some of these stocks are more attractive than others. Generally speaking, the stocks at the top of the list look like better bargains than the stocks at the bottom of the list. Perhaps, that’s an indication of investor sentiment. Already out of favor stocks get knocked down even more. Personally, I think it’s just a coincidence. For instance, I thought Jakks Pacific (JAKK), Blyth (BTH), and Timberland (TBL) already looked cheap. On Friday, Jakks and Timberland were up a bit; Blyth was basically unchanged. I suppose asking for a further drop in stocks that are already that cheap is asking for too much.

By the way, is now at a fifty – two week low; Journal Register is at a five year low.

On a personal note, I have to admit Friday’s trading has reinvigorated me. Bargains don’t grow in the sun, and judging by yesterday’s media coverage, there’s a renewed chance of clouds. Still, Friday’s trading didn’t make stocks materially cheaper. A drop of two or three percent is little more than a rounding error.

At least we won’t have to hear about Dow 11,000 on Monday.

Happy Hunting