What kind of game is this?

Today, Standard and Poor upgraded Countrywide Financial (CFC) from Strong sell to Sell. What kind of game are these analysts trying to play with us? Does it make sense that something which is so unattractive be worth deeming it less dead that previously noted.

This kind of manipulation by analysts raises my suspicions. Are the analysts fearful that, by painting a negative, but accurate picture, it is going to become a self-fulfilling prophsey? Does Standard and Poor have a vested interested in CFC? The justification given by Standard and Poor analyst Stuart Plesser for raising Countrywide from the dead to near dead is that it has been hammered so much that it couldn't possibly go any lower. Come on!!!!

This leads to unjustified optimism without the necessary proof that things have turned around. We need evidence not an analyst's assurance that it can't possibly get worse. This seems all the more outrages when you consider that some 21 companies in the subprime lending industry have filed bankruptcy at or near a perceived top in the real estate financing market (as opposed to the valuation of real estate itself.)

Continue to wait for the proof before considering this company as worth investing in. Countrywide is still a STRONG SELL.

Standard and Poor rating

Countrywide Financial (CFC)

Ups from 1 STAR (strong sell) to 2 STARS (sell)

Analyst: Stuart Plesser

Countrywide's shares have fallen over 10% year-to-date, in our view leaving only modest downside potential. We are concerned about Countrywide's exposure to the subprime market and the possibility of loans being put back to Countrywide due to higher default rates. We also believe that Countrywide's gain-on-sale margin will fall due to a widening of credit spreads in the securitization market. Finally, we remain cautious about Countrywide's option ARM loans, which comprise over 40% of loans held. We are lowering our target price by $2 to $36, 8.2 times our 2007 EPS estimate of $4.37, a discount to Countrywide's historical average.

http://www.businessweek.com/investor/content/feb2007/pi20070227_897788.htm?campaign_id=yhoo

Email our team

Overall Market Direction...

When considering the best stocks to purchase you must also consider the risks to the overall market. What this means is that you need to consider where we are and where we might be going. The ideal reference points to start you analysis from are the previous peaks and troughs in any market you chose to invest in. The farther back you can observe the better.

I have decided to review the previous market cycle top that occurred from Jan. 1966 and ended around Jan. 1982 to demonstrate the power of the market cycles. The chart below from "The Wall Street Waltz" by Forbes Columnist Kenneth Fisher shows the Dow on an inflation-adjusted basis. This chart shows how, after inflation, the market moved sideways or down from Jan. 1966 to Jan. 1982.

As any cycle goes there is a point that there is an ultimate high or low. The best we can do as market observers and investors is to guesstimate where the bottom might be. Since the stock market has run on a 16-year cycle for the last 100 years it is safe to say that the stock market will hit it's ultimate bottom between 2008 to 2016.

This forecast doesn't seem very upbeat, I know. However, it is important to keep in mind that this will help you to choose your investments wisely in the coming years. Companies that have a consistent history of paying dividends are definitely going to make the difference in your investment performance.

Imagine if you bought stocks at the peak of the market in 1966 or 1972. If you had, the biggest stocks for that time would have broke even on your investment in a short period of time (3 to 5 years.) That is why I recommend that you read the article titled "The Nifty Fifty Revisited" by Jeremy Siegel. Siegel studied the top companies performance assuming that you bought at the market peak. It is no coincident that a majority of the companies studied by Siegel were dividend-paying stocks that can still be found in the current Mergent Dividend Achiever list.

If you chose to invest in stocks then knowing the market's history should serve you well. For those who bought the largest income paying stocks, from '66 to '72 and held on, they were richly rewarded.

Email our team