Dow off by 120 point - Buying opportunity
The lower than expected number of existing home sales was cited as the primary reason the market sold off today. The DOW closed about 120 points down. Our view is if anyone was surprised that housing is soft, they must been living in a cave. For a number of months economic reports have alluded to the fact real estate has been soft. Mortgage application is down as well as refinancing activities. Yesterday, another report indicated foreclosure rate is highest in 5 years. The market sold off for a different reason. Our take is the market was simply taking profit; rightfully so given the recent run up.
Nevertheless, the sell off was a great opportunity for us to add more positions of our favorite stocks that have nothing to do with Real Estate. We pulled the trigger on Starbucks (SBUX) at $33.90. While SBUX valuation is always a concern, we believed at this price, it’s just a good deal; especially when the decline was the result of an overall market overreaction and some profit taking. By the way, SBUX is growing rapidly in China, we believed the growth opportunity there is just huge.
We also added Cisco (CSCO) and Time Warner (TWX) at 2.5% discount. Cisco (CSCO) is definitely back and TWX will likely surprise the market when they report next week (Jan, 31). AOL is no longer a liability to TWX; it is now considered an asset. The free portal model is a little late, but it’s late than never. Rumor has it; the AOL portal is gaining huge traction. Aside from AOL, TWX cable, move and host of their other business appears to be doing well. Cisco will continue to benefit from the increased telecom spending and Enterprise upgrade this year. Flushed with cash, Enterprise will be looking to upgrade their network this year. We see CSCO trading at over $30 per share by years end. Our price target for TWX is also $30 by December 2007