Will Blue Chips Recover?

Usually it’s the blue chip stocks that lead an economic recovery but not this time. Many blue chips seem to be caught in a so called flight from quality where long term value is ignored in favor of short term factors. Or, are investors seeing something different this time around?

A large number of blue chips including Proctor and Gamble and Exxon have lagged significantly as long term value seems not to impress investors. Some of this “flight from quality” may have to do with the depths to which financials and other stocks plunged some months back and the promise of quick profits as the economy starts to straighten itself out.

On the other hand the apparent “flight from quality” may be that investors do not see a long, strong, sustained recovery. Talking to people in general, the mindset and phrasing of those who lived through the Great Depression never really trusted anything but cash ever again. It may be that investors do not see as much long term value in a possible blue chip recovery because they don’t believe that the long term value will be there.

We see that Coca Cola has slipped as North Americans are drinking less soda. The economy has taken quite a bit out of pocketbooks when coke fanciers will give up their soft drink. Maybe the flight from quality in Coke’s case is a cultural shift, a change in mindset of a generation.

If that’s the case where do you invest? Your best bet is probably still the blue chips like Proctor and Gamble and Exxon. Their growth in an aborted blue chip recovery will be slower but these stocks still have long term value. As we mentioned going into the recession people always need basic consumer goods and these stocks survive no matter what. The long term value in a P & G is that people will always buy its products and for Exxon the world will always need energy.

Long term value will continue to be long term value but the multiples may not be the same. A cultural shift in our society may have permanently changed perception of worth and value. Investors will see value in good stocks but consumers will quite possibly have changed some of their buying habits for a lifetime.

The flight from quality may be a flight to savings and the blue chip recovery may take several years. If blue chips will take longer to recover, then maybe their current lag presents an investment opportunity in long term value.

Over the long term people need to buy products and those who make and market them effectively will prosper. Some of the delay in a blue chip recovery is probably not any deep cultural shift but just a sense of the investor being once bitten and twice shy. The problem is that too much caution during an economic recovery, albeit a slow one, may cause the investor to miss out on low prices while they last.

Tags: , ,
Previous Post

Long Term Success in Day Trading

Next Post

Time to Look for Tax Free Investments

Home Privacy Policy Terms Of Use Contact Us Affiliate Disclosure DMCA Earnings Disclaimer