Focus on Stocks not the Market
January 25, 2010
Experts and investors are once again this week focusing on the up and coming "Lost Decade" for markets. What they should be focusing on is the growing overall U.S. demand during the next 10 to 15 years, and the companies that will prosper from it.
If we take the comparable period of 1975 to 1982, we can see the numbers of consumers in the U.S. (top chart) continued to grow, and that the challenge for investors was to find undervalued companies that were benefiting from this growing emerging demand.
The bottom chart of Wall Mart is a good example of this. In 1975 investors could have paid about 35 cents for every $1 of sales. Given Wall Mart's high sales growth, investor were willing to pay a higher price for the companies future sales, and the P/S ratio rose to 0.64. The shares easily outperformed a difficult market backdrop and rose 2,900 percent between 1975 and 1982.
Today Wall Mart faces a new set of demographic problems has there is no emerging demand to tap into to drive sales forward. In fact, the reverse is occurring, as its key demographic–the Baby Boomer generation–is shrinking. Therefore, it will have to continue to cut costs in the coming years if it is to continue to grow its bottom line.
We believe that there are plenty of undervalued "New" Wall Mart stories about that are tapping into today's emerging generational Demand. However, investors will find them by focusing on stocks and not where the main indices will be in ten years time.
