Barron's with some interesting stats regarding the selloff - here are some quotes:
"HISTORY SUGGESTS THAT STOCKS MAY DO WELL in the next two months. There have been 38 days since 1979 when the S&P 500 has suffered a single-session loss of 3% or more. The average gain in the ensuing 60 days has been 6.9%, with the index rising in 31 of the 38 cases, according to Citigroup research."
"Where does value lie? Investors have a choice. They can play the economically sensitive industrial, energy and materials sectors, where many stocks are available for about 10 times earnings. Or they can buy blue-chips for 15 to 20 times profits. Another alternative is financials, now valued at 10 to 15 times estimated 2007 profits.
Tom McManus, the equity strategist at Banc of America Securities, favors "high quality, large-capitalization stocks with diversified, defensive earnings streams." He notes the price-earnings multiple of the market's largest stocks, the top 150 companies in the broad S&P 1,500 index, is much lower than the P/E of the smallest 150 companies.
One place to hunt for value is the top 12 U.S.-listed stocks ranked by market value. Half the top 12 -- ExxonMobil (XOM), Citigroup (C), Bank of America (BAC), Pfizer (PFE) and American International Group (AIG) -- trade for just 12 times earnings or less. The richest stock among the dozen, Procter & Gamble (PG), fetches 19 times earnings.
Citigroup and Bank of America have among the lowest P/Es in the banking sector, carry yields of 4% and have lagged behind their peers in the past year. The heat is on Citi CEO Chuck Prince. If the company continues to disappoint the Street, Prince could be gone, perhaps by year end, and the company could be broken up. Both developments likely would boost the stock."
If one buys into the "large caps" argument, one could buy the OEX index etf (OEF), which was up 16% last year but is down 3.8% as of Friday's close, or one could cherry pick some recent underachievers, such as:
C, which is down about 10% in 2007, was up 14.8% last year, pays a dividend of 4.2% and has a 2007 estimated P/E of 11.3.
GE, which is down 6% in 2007, was up 6% last year, pays a dividend of 3.2% and has a 2007 estimated P/E of 15.8.
PFE, which is down 4.3% in 2007, was up 11% last year, pays a dividend of 4.6% and has a 2007 estimated P/E of 11.3.
MO, which is down 3% in 2007, was up 15% last year, pays a dividend of 4.1% and has a 2007 estimated P/E of 15.
Also, some chatter about slowing economic growth and lower fed funds rates. According to Barron's, "ML economist David Rosenberg wrote in a client note Friday that he sees 2007 growth of just 2.2%, below the 2.7% consensus estimate. The good news from any economic slowdown likely will be easier monetary policy. Rosenberg sees the key Fed Funds rate ending 2007 at 4%, versus the 4.75% now discounted in financial futures markets. The rate is now 5.25%."
If Rosenberg is correct, the financials and the brokers should benefit along with all those homeowners with HELOC's/ adjustable rate mortgages and owners of real estate in general.
All stocks would no doubt benefit with the banks and financials getting an added kick. A nice way to play, the IAI etf, which holds all the big brokers (GS MER MS LEH BSC LM) along with exchanges CME NYX NMX CBOT ICE ISE and NDAQ. The big three brokers, GS ML and MER, make up about 24% of the fund.
My guess is over a long period of time, the broker index ETF will be tough to beat.