Buyers are on strike. But The Motley Fool can still find 3 hidden gems amongst the sharemarket wreckage.
It's a tough time to be a share market investor.
Just when you thought we were past the low point, and shares were set to rally, along comes another crisis to derail the market.
This time it's Europe. Right now, it's hard to see how the Eurozone can continue in its current state of separate fiscal and monetary union.
The markets are expecting Greece to default. The European politicians are desperately trying to secure a sixth instalment of bailout funds. And Greek unemployment is projected to exceed 1.2 million, a devastatingly high number in a population of just 11 million.
Costas Lapavitsas in The Guardian says Greece must default and quit the euro…
"A Greek default and exit must be taken in the people's interests – not entrusting the process to the EU, IMF and banks."
Roubini: No crisis
Not surprisingly, Nouriel Roubini, the market's most notable bear, agrees.
Writing in the Financial Times, he says in order for Greece to restore competitiveness, they require real currency depreciation. And that means a return to the drachma, and hopefully cheaper souvlaki and ouzo.
But surprisingly, Roubini doesn't predict a full blown financial crisis. Yes, it will be traumatic. Yes there will be capital losses for core eurozone financial institutions. Yes collateral damage will occur.
Yet Roubini says these problems can be overcome. In fact, Greece's default and exit from the euro could be liberating. Other countries, like Portugal, may eventually have to restructure its debt and exit the euro too. But the trail will have already been blazed. The fear of the unknown is often worse than reality.
Roubini concludes…
"Make no mistake: an orderly euro exit will be hard. But watching the slow disorderly implosion of the Greek economy and society will be much worse."
Whilst Europe smoulders, Australia burns
As to whether all this comes to pass, time will tell. But the sirens are sounding. Judgement day is coming closer.
In the meantime, share markets remain jittery. The Australian market can't take a trick. Even after U.S. markets last week had their longest rally since July, we continue to get it in the neck.
We have a buyers strike, with share trading volumes at an almost seven-month low.
In the Australian Financial Review, portfolio manager Brian Griffiths summed up the mood.
"It's not so much selling, as no buying, and I don't think anyone is really looking to make a move until there is more clarity in Europe. And in some ways it could be better if they just defaulted and got on with it."
There we go again – the fear of the unknown being worse than the actual event.
One big fishing pool
Here at The Motley Fool, we focus our efforts on searching for good companies trading at cheap prices. A buyer's strike only increases the pool in which we can fish.
Mind you, without an obvious catalyst, and whilst the European situation remains in limbo, it's unlikely individual shares are suddenly going to take off.
Take Specialty Fashion Group (ASX: SFH), for example.
Only a few weeks ago, when the shares traded at 70 cents, Motley Fool Analyst Dean Morel suggested most of the bad news had looked to be fully priced into the shares.
Fast forward to today, and Specialty Fashion trade at just 46 cents, down 34%. Its market capitalisation is under $90m. It has a net debt position of just $16m. Full year sales were $570m and operating cash flow was $34m.
These are value prices. Yet Specialty Fashion Group is investing for growth. Capital expenditure last financial year was $34m – compare that to their current market capitalisation. 92 news stores were opened, and 97 were refurbished.
I liked the stock so much I bought some myself
So good was the story, and so compelling the value, after earnings were released, Dean took his own advice and bought shares at 60 cents.
He's down on that purchase, so far. But he's held the position for a matter of weeks, a time when the overall share market has been hammered.
Investing success is not measured over the course of a few weeks, especially when most shares have been marked down, some savagely so.
And as Dean says…
"Sound portfolio management and position sizing ensures that even if Specialty went bankrupt – which is unlikely – it would have a very small impact on my overall performance. As importantly, while it's nice for a share to rise after you buy it, a few weeks is meaningless in my investment world."
Growth shares at value prices
Specialty Fashion Group qualifies as one of those precious gems – a growing company at a value price. It's a segment of the market we increasingly think is fertile ground for finding market beating share market investments.
For example…
New Fool contributor Peter Phan has discovered one small, unloved car parts seller and panel beater trading at a compelling price.
A couple of weeks ago, Dean called Integrated Research (ASX: IRI) "One tech growth stock at a crazy cheap price." In a sharply down market, the shares are up over 19%.
We have more such stocks firmly on our radar. Keep your eyes peeled.
Whilst Europe burns, and shares are neglected, opportunities abound. Holding shares may not feel like a whole lotta fun right now, but as Warren Buffett says, "uncertainty is the friend of the buyer of long-term values."
Do you want to know what to do if the market crashes again? Request a new free Motley Fool report titled Read This Before The Next Market Crash. Click here for instant access.
Dean Morel has a position in Specialty Fashion. The Motley Fool's disclosure policy never burns.
