Today, many investors are making decisions in response to Russia’s invasion of Ukraine, which is a big mistake.
“In the long run, stocks will trade at their true value,” Real Money columnist Paul Price recently wrote. “In a few months from today, Ukraine will be off your deal radar, but the tremendous value it creates by focusing on it at the moment will no longer be available.”
While world events can move markets dramatically, the resulting volatility in individual stocks may not be related to the relevant event.
This is a question that Price writes about a lot, especially in the early days of Covid.
In the first half of 2020, stocks saw their biggest drop in years. Investors rush to sell assets across the board…but why? While mom-and-pop stores are closing in droves, there’s no reason to think big public companies won’t bounce back. In fact, there’s every reason to think the federal government will make sure they’re doing well.
And, indeed, this is what happened. By October 2020, the market had recovered its value, and then some. Investors who bought during that massive liquidation were sitting on huge gains in the 12 months after the initial sell-off.
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It’s not necessarily a requirement to buy everything visible. Instead, Price offered his usual advice: buy quality stocks, especially if others are willing to sell them for less than their value. It’s just… in times of crisis, a lot of people are willing to sell quality stocks for less than they’re worth.
Prices recently quoted FedEx (FDX) – Get FedEx Corporation Report as a current example.
Despite many huge market turmoils, FedEx “has been a well-established growth stock over the past decade,” Price wrote. “Earnings per share soared over 270% from FY2011 to FY2021. Dividends grew over 440%”
During that time, “the total return for continuing holders was close to 148%, but that figure was well below the actual value created.”
In fact, “Aside from the short-lived Covid panic lows, FDX has only been available once since 2011, with a P/E ratio below current levels. Buyers in February 2016 were well rewarded. FDX is about to surge from south of $120 It rose above $274 in less than two years,” Price wrote.
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