Make This Bad Market Work for You

The carnage has been incredible. We were having a rough enough year before we entered September. Since then, we have had a disastrous year. I decided to see how bad it has become in the market and ran a few simple screens.

Of the S&P 500 stocks, 394 of them trade within 5% of new lows. None trade near 52-week highs. Only 10% of the stocks in the index still trade above $50 a share, and 173 are trading below book value. Of the index components, 20% have negative earnings for the past four quarters. Of those 500 stocks, 10 are up on the year. Most of those are basic food companies such as Campbell (CPB - commentary - Cramer's Take) or retailers specializing in discounted merchandise, such as Family Dollar Stores (FDO - commentary - Cramer's Take).

The combination of a weakening economy and liquidation trades has been lethal for stock prices. The broad market is down almost 50%, and financial stocks are down far more than the market. There has been nowhere to hide. Even the energy and commodity trades that were working have quickly collapsed in the last two months.

It is a scary time for investors and traders alike. A lot of the traders I talk to on a regular basis have told me that techniques that have worked for years are failing now. Even the very best investors of our time, whether growth-style or value-style, have been crushed in this market. Warren Buffett is down on the year, and his two latest investments have been disastrous in the short run. Ken Heebner was widely celebrated for his success earlier this year. Right now he is down more than 40% year to date. Marty Whitman has a long track record of success. He has not been able to dodge the bear either. Very few have.

It is like a broken record. Every day we see stocks that appear ridiculously cheap. Ashland (ASH - commentary - Cramer's Take) now sells below its cash balances and 25% of book value. Is all economic activity that involves chemicals really going to end? Will people stop changing their oil at Valvoline auto centers?

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At the time of publication, Melvin had no positions in stocks mentioned, although positions may change at any time.

Tim Melvin is a writer from Stevensville, Maryland, who spent 20 years a stockbroker, the last 15 as a Vice President of Investments with a regional firm in the Mid Atlantic area. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Melvin appreciates your feedback; click here to send him an email.