The Market Is Closing in on a New High

The market is looking good today. If the S&P 500 closes above 1294.18, it will be our highest close in 57 months. Right now, we’ve very close.
Over the past few years, small stock indexes have done much better than the S&P. In fact, they’ve hit all-time highs in recent weeks, however, small stocks have underperformed the market since the beginning of the year.
One of the important lessons of investing in the stock market is that stocks don’t move rationally. At least, not in the short-term. We have all these hi-tech toys that are used to analyze things that really don’t make much sense on closer inspection.
Trends are often much stronger and longer-lived than you think. For example, Home Depot (HD) had a good earnings report and the stock basically ignored it. Medtronic (MDT) also had a good report, and the stock is weaker today.
As long as the earnings are good, I’m not concerned about those stocks. Their time will come. Remember, if the Dow were to accurately reflect its underlying value, it would move about four or five points each day.
Expeditors (EXPD), Danaher (DHR) and Donaldson (DCI) are all at new highs today. As much as I like Expeditors (which is a lot), I have to admit that its shares are fairly pricey. Yet, the stock keeps going up. Who am I to say stop?
On the other hand, we have Bed Bath & Beyond (BBBY) which is very cheap, and its shares seem to be going nowhere. It’s time will also come. I don’t know when, but I’m holding on.
Dell (DELL) postponed an analyst meeting. I don’t think it’s anything to worry about. I noticed this factoid from the article: “Concerns about growth have held back Dell’s shares, which trade at about 15 times estimated fiscal earnings per share for the coming year, the same as No. 2 PC maker Hewlett-Packard Co. That is a discount, since Dell’s estimated long-term growth rate is about twice that of HP, according to Sanford C. Bernstein analyst Toni Sacconaghi.”
Twice the long-term growth rate, yet it trades with the same P/E ratio. Like I said, this isn’t always rational.
For the year, our Buy List is up 2.98% versus 3.57% for the S&P 500.

Posted by on February 22nd, 2006 at 1:22 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.