As the Dow Jones Industrial Average recovered from a 465-point plunge Tuesday morning, Capital Region financial advisers spent the rest of the day using one hand to calm nervous investors and another to do some bottom fishing for undervalued stock.
“To a true value manager, you live for days like this When fear is on the street, that’s when value managers get excited,” said George Chelius, the director of marketing at Fenimore Asset Management, a Cobleskill independent investment advisory firm.
But getting local investors — especially those nearing retirement — to share in that excitement is where the challenge lies, area financial advisers said. The Dow closed Tuesday at 11,971.19, down 1.06 percent. The index was down 15.48 percent from its record high of 14,164.53 reached on Oct. 9.
“It’s hard for people to understand that this is not a time to panic. This is a time to buy,” said Chelius.
From London to Hong Kong, stock indexes tumbled on Monday as global investors grew increasingly convinced a U.S. recession was unavoidable. Their concern was that the economic stimulus and other measures the Bush administration is pursuing will not cure the nation’s woes, which have largely been wrought by the housing slump and credit crunch.
Chelius said the negative perceptions surrounding those two industries have caused the stock of some companies within them to be undervalued. He said that guilty-by-association mentality is creating “one of the best buying opportunities” since the dot-com bubble busted in 2000.
Among FAM’s bargain-hunting targets are M&T Bank Corp. in Buffalo and the Union, N.J.-based Bed Bath & Beyond, which has stores in Colonie, Wilton and Niskayuna. By the close of trading Tuesday, Bed Bath & Beyond’s stock was $29.26 per share, up 8.17 percent. M&T’s stock rose 3.5 percent to $76.27 per share.
Sanford “Sandy” Family, the managing director for investments at Sanford Family Financial of Wachovia Securities in Latham, also said it is “an opportune time to take cash off the sidelines and get in gradually.” He said large multinational companies, such as General Electric Co., are increasingly becoming more appealing to investors because of their lessened exposure to the U.S. economic downturn.
The Fairfield, Conn., conglomerate last week posted a 4 percent fourth-quarter growth in profit. GE’s stock closed at $34.05 per share, down 0.76 percent.
Other attractive investments with local ties that Family identified were TrustCo Bank Corp in Glenville and KeyCorp in Cleveland. By the close of trading Tuesday, TrustCo’s stock was $9.63, up 5.02 percent.
Even though Key reported Tuesday a fourth-quarter net income of $25 million, compared with $146 million a year earlier, its stock jumped $23.75 per share, 12.56 percent. Key’s 2007 net income was $919 million, down 12.9 percent from $1.06 billion the previous year.
“It’s mostly emotion. There’s not a lot of logic for why the market is as low as it is,” said William Jerome, the president of Capital Financial Services in Glenville.
Jerome said anxiety over the real estate industry has turned CB Richard Ellis stock into a bargain. The Los Angeles commercial real estate services firm has a brokerage in Albany. By the close of trading Tuesday, its stock was $16.87 per share, up 2.62 percent.
Family said the Federal Reserve’s drastic decision announced Tuesday morning to cut its federal funds rate by 0.75 percentage point helped Wall Street recover from its morning tumble while still stoking investor concerns.
“Many investors think there is something wrong here,” he said.
With its first unscheduled meeting since September 2001, the Fed reduced the interest banks charge each other on overnight loans to 3.5 percent from 4.25 percent.
Tuesday’s move marked the Fed’s largest rate cut in recent memory, and another reduction might come later this month. President Bush has also proposed a $150 billion economic stimulus package, which includes tax breaks for consumers and businesses.
“We probably need all those things to turn the sentiment tide,” said John Colley, the portfolio manager of Colley Asset Management in Saratoga Springs.
Colley said the stock market has put his clients on a “roller coaster” since Christmas, though they have largely grown accustomed to Wall Street’s recent ups and downs. Despite the stock bargains, many investors are holding back because they believe they have not seen the worst of the mortgage crisis’ backlash, which has already hurt financial giants such as Morgan Stanley, Citigroup and Bear Stearns.
Current market conditions have forced the hands of some clients nearing retirement who would rather retreat into fixed-income portfolios with U.S. Treasury notes and certificates of deposit rather than subject their money to the market’s gyrations, Colley said.
But Chelius at FAM said this week’s market declines will largely be forgotten in six years, as similar drops were in 2001 and 1987. He stressed that his Cobleskill firm caters to long-term investors.
“After 9/11, the best course of action was to stay the course,” said Family.
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