Stocks slumped again Thursday, but things could have been worse.
In what has become a familiar pattern of late, equity markets opened modestly higher, then declined at an accelerating clip in the afternoon. By late in the session the Dow Jones industrial average had tumbled 99 points, but then, surprisingly, began to bounce back, ending the day down a more modest 30.26, or 0.3 percent, at 10,287.10.
Despite that last-minute surge, the market continues to suffer from an attack of nerves. Through the week’s first four days investors have grown more worried that interest rates are headed significantly higher, and the Dow has dropped 281 points, or 2.7 percent.
Crude oil for November delivery declined for a fifth straight day, dropping $1.43, to $61.36 a barrel. But investors chose to focus on a chorus of inflation warnings various Fed officials have issued this week.
The Standard & Poor’s 500 index slid 4.90, or 0.4 percent, to 1191.49. The technology-heavy Nasdaq composite index fell 18.94, or 0.9 percent, to 2084.08.
Treasury securities also weakened, with the benchmark 10-year bond slipping 5/32 to yield 4.39 percent.
Stock and bond traders alike are waiting for a look at the Labor Department’s September jobs report, due for release Friday morning.
Bargain-basement giants? As manager of the Putnam New Value Fund, David King spends his time looking for undervalued stocks.
Often, that’s meant doing lots of research on the shares of lesser-known concerns. Although Putnam fund won’t look at companies with less than $1 billion in revenue, that still leaves it with room to shop among mid-cap stocks when it wants.
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In fact, King says he’s grown accustomed to “feeling a little lonely” when taking a position in many stocks, and of having to explain to people exactly what some of his companies do.
That’s not the case with some of Putnam New Value’s recent purchases: DuPont, Alcoa and American International Group–three components of the iconic 30-stock Dow–hardly qualify as hard-to-recognize sleeper stocks.
Recently, “I’ve been surprised by the cheapness of a number of large, blue-chip companies,” King said in an interview.
Investors have focused on small- and mid-cap companies, he said, and as a result, “a lot of the cheaper stocks are large corporations” that boast national or global brands.
With so many biggies now being overly discounted by the market, he said, his fund has been “selling our holdings in medium-size companies and getting into bigger companies.”
And big can be beautiful. King took a significant position in Boeing when the stock was cheap in the aftermath of the 9/11 attacks. His fund bought McDonald’s a few years ago, after the company’s stock temporarily plunged in response to “some self-inflicted problems” that King notes have since been addressed.
A number of the Dow components have lost favor with investors because of “company-specific issues,” King says, pointing to retail goliath Wal-Mart, which recently saw its shares hit a five-year low because its growth prospects have come into question. Still, he contends, investors are readier than they used to be to discount blue-chip stocks because of such difficulties.
In today’s market, King’s favorites include DuPont and Alcoa, a couple of giant energy-intensive basic materials plays, which, despite being “pretty well run,” have been hammered to 52-week lows by investors’ fears about energy and raw material costs.
Another sector he has been drawn to is the insurance industry, where the fund has over the past year taken positions in Chubb and AIG. If you assume, as King does, that the industry’s pricing environment will remain strong for a couple more years, “insurance stocks look very cheap,” he said.
Putnam New Value is rated four stars out of a possible five by Morningstar. While the fund’s recently renewed interest in “household-name” stocks has yet to yield solid gains, Morningstar analyst Laura Pavlenko Lutton noted in a recent commentary, “Over the long term … King has shown he’s a skilled stock-picker.”Bill Barnhart is on sabbatical.
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