The Dow Jones Industrials dropped about 14 percent last week, the Nasdaq about 16 percent. With a break in the charts like we saw last week, the damage will take awhile to repair.
In the next few weeks, we will see some sharp rallies, but they will most likely be met by willing sellers. For the rest of this year, any hope of a sustained rally is not likely to happen. Look for a trading range between last Friday’s low and the September 10 high.
For long-term investors, this is the hardest time. Sitting still at times such as these is very hard to do, but the fact remains, little has really changed for the majority of stocks. If you own the right stuff, your long-term plans should not be changed one iota. If you are still bullish on America (as we are) then you should be buying – not selling, in most cases.
Find the quality stocks that will be good for a long time, and buy them gradually. If you have been doing just that, don’t let fear get the best of you. While there were few bargains 15 months ago, there are many now.
There were a few stocks that did very well during a very dismal week. If you are looking for near-term action, here are some that look promising.
Defense Stocks – Obviously things are changing here. A month ago it looked like the Republican attempt to secure larger military spending was “iffy,” now it’s virtually a sure thing.
Edo (NYSE: EDO) is one we have mentioned here before and last week – like most defense stocks it did very well. Edo closed on September 10 at $20.
After the market re-opened, Edo gapped up to $28. For the rest of the week, it traded in a narrow range between $24 and $26. Give EDO a few weeks to settle down, but watch the $27 area. If the stock closes above that level, it should be ready for another nice move and we think there is lots more upside here.
Edo makes many important high-tech electronic products for fighter planes and other parts of the defense industry. We think Edo has a good chance to double in the next 24 months.
For those of you that are “tech” fans, the place to be for the next few years may be the smaller defense sub-contractors that specialize in the new high-tech warfare that we will be engaging in for the next few years.
This would include companies like Alliant Techsystems (NYSE: ATK), L-3 Communications (NYSE: LLL) and GenCorp (NYSE: GY). We also rate these three as buys at current prices.
Telecom sector – From what we can see the one thing that has surely changed since Sept. 11 is that the bear-market in many of the telecom stocks is over. Cell phones are one area that should see a big recovery, and it looks to us that this recovery is already under way.
Motorola (NYSE: MOT) is one we would strongly recommend here. While stocks were being beat up last week, Motorola finished the week virtually unchanged, a victory in this market for sure. This is the type of strength you should take note of. Someone was stepping up and buying this stock aggressively during the market chaos.
Another plus for Motorola is that they have many clients in the defense industry and although not a pure defense play, they will be another beneficiary of what is unfolding. We think this stock could double in the next 12 to 15 months.
Investors might want to revisit Tetra-Tech (Nasdaq: TTEK). This stock opened down $2 on Monday .a.m. What was impressive was that all day after that, while the market was weak, someone was bidding strongly for the stock and it finished the day close to where it started. Then, later on in the week, it actually rose a point and a half before falling to finish down about $1. Considering the overall market action last week, that shows us there were aggressive buyers in Tetra Tech.
On September 20, Tetra Tech announced that they had been awarded a $20 million contract to design/engineer a wireless “in-building” communications system for three hospitals in Southern California. These in-house wireless systems are state of the art, and involve patient tracking, provide electronic DNA evidence, exchange lab information by wireless and are the wave of the future. This should be the first of many for Tetra Tech, just in the hospital sector alone.
Building “in-building” communications systems is starting to catch on. Tetra Tech currently has a project under way in Las Vegas to build these systems for eight different casinos. This area has much future promise.
No less promising are all the water projects that American cities can no longer ignore – they have been put-off for too long. Infrastructure building of new water systems, and repairing existing systems, should be another strong area for Tetra Tech in the coming years.
So, all in all, we are expecting Tetra Tech to continue to show the strong numbers that they have in the past. Below the $25 area, we feel the stock is a good buy.
Bottom Line: Investors need to relax and realize that these types of markets are a part of the business we must learn to deal with. That is easy to say, but hard to do in reality. But do it you must, and this, too, shall pass. What happened on September 11 is no different from any setback America has had in the past. We got a sucker punch for sure, and we are now wide awake and, more importantly, firmly united in our course of action. America will come back bigger and better than ever. If you don’t believe that, then the stock market is not the place for you.