By Keith Fitz-Gerald
Money Morning/The Money Map Report
With the way stocks are being whipsawed, investors often ask me how to tell when the market is ready for a rebound. While there's no way to ever be 100% certain, I usually just let history be my guide.
And history has a very interesting story to tell right now.
Just take a look at the following chart. Since 1927, the markets have shown beyond a shadow of a doubt that the worst of times for the U.S. economy have literally proven to be the best of times for stocks when it comes to choosing a time to buy.
The best buying opportunities are typically found when the market is represented by points inside the box located in the lower left-hand corner of the chart. This is when valuations are most favorable, as they were in 1932, 1941 and 1982.
When the markets are anywhere above and to the right of the box, they are statistically more at risk of falling than rising. There are naturally times when the markets rise from points above the box, but those are the historical exceptions.
For instance, take a particular note of March 2000, represented by a point way up in the right-hand corner. Take a minute to drift back in time and recall just what everybody was saying then about U.S. President Bill Clinton's "New Economy," the Dow Jones Industrial Average heading to 15,000 (and beyond), the Internet-technology boom, etc.
Everyone was encouraged to buy in. One of the reasons why I refused to buy into that - pun absolutely intended - is because of this valuation chart. I could see that the markets were ludicrously overvalued at that time versus any other period going all the way back to 1927.
The markets certainly aren't that overvalued now.
GDP Declines Bode Well for the Dow
Interestingly enough, this data is supported from another angle using gross domestic product (GDP) data. Since 1947, of the 11 times the quarter-over-quarter change in GDP was a minus 4% or more, the Dow was higher by an average of 25% one year later and 35% two years later.
What the data in this second chart tells us is that the latest projections suggest we're right in line with historical norms, given that economists expect that the U.S. economy suffered a mind-numbing decline of 4.35% in the final quarter of last year. When everyone else believes the worst; that's when you should be buying.
Obviously, we have to take this kind of phenomenon with a grain of salt, but any time one data source corroborates another, it's worth noting - particularly when there are companies out there that meet our very strict investment guidelines.
One company in particular that I'm jazzed about is pretty phenomenal. Just today, in fact, I released a report on it to the online readers of The Money Map Report. Let me give you some specifics.
I like this particular company because it operates in a "boring" section - and yet the numbers surrounding this company are about as exciting as they come.
It's got a $4.4 billion market cap, and it's beaten five of the last six earnings estimates by an average of 32.35%, despite horrific market conditions
In fact, anytime I consider a stock as an investment candidate, I want to see expanding year-over-year sales and earnings figures. More so than any other indicator, I find that what a business does for and with its customers is a solid indication of how management's handling things.
And by all accounts, this company's score is "darned good." Quarterly year-over-year revenue has expanded 33.6%, while earnings have increased 49.5%.
The bottom line: The stock is undervalued. And it pays a steady dividend, so we'll be rewarded even while we're waiting for the rest of the market to recognize this company's inherent worth.
I've just released all my research on this company today (Friday) in our current issue of The Money Map Report, which is for subscribers only. But I'll also be reporting on other opportunities like this in the weeks ahead. I'm hoping to see more of them.
[Editor's Note: Keith Fitz-Gerald is also the Investment Director of the The Money Map Report. This story is excerpted by special permission from the February issue, being released online today (Friday). For more information on Fitz-Gerald's recommendation, please click here.]
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Blood in the Streets.
About the Author
Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.