I expect some more portfolio drama today... FOMC rate decision + Obama State of the Union = double whammy. I am feeling so jittery, especially after noticing that DJIA is hovering near the key psychological level of 10,000. Just one more bad session could potentially put more investors in a panic.
When will people realise that Wall Street and Main Street are but two sides of the same coin? If the financial infrastructure of an economy fails, what hope is there for any sort of recovery? It is an economic civil war we do not want to be fighting.
Yes, Wall Street has been portrayed as the Axis of Evil in this financial saga, but rather than waging a war on capitalism, what has happened to the war on poverty? Or the war on drugs? And the war on incompetence?
Er, speaking of incompetence... on the portfolio rebalancing front, I sold DFS in exchange for AA. I took a small loss of about 4% on this DFS trade. I feared that I had purchased another second runner up. I know potentially what I could be getting into.
DFS has a high EPS, low P/E, and positive ROE. I am exchanging DFS for a company with a negative EPS, negative ROE, and huge debt commitments. However, if the financial sector is sinking, I could be looking at a painful downhill slide. DFS could get sold even though it's got a strong balance sheet. Commodities, on the other hand, might make a solid comeback.
AA still has a negative EPS, but it's got a Price/Sales ratio of 0.72, which means that revenues are higher than market cap. Even if the Chinese economy slows down, if AA's market cap reaches parity with revenues again, I'm looking at a minimum gain of 45%. A stock does not need to have positive EPS to increase in value. Rather, sometimes, the anticipation of EPS growth is more enticing than actual EPS results.
This, by the way, is the top secret mining company of choice I was referring to.
If I know anything about miners in general, it's that they have huge bargaining power. So, hopefully I've made a good choice.
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