JBL: Damn the Dislocations

I believe the crisis between Israel and Lebanon is providing an excuse for our market to sell off. The crisis is real, and hopefully will be contained, but this is just what part of the market wanted to justify a selloff.

The market has been in a funk over Federal Reserve chairman Ben Benanke's lack of vague verbal skills -- the kind that Alan Greenspan mastered. More importantly, the market was worried that Mr. Bernanke would repeat 1991, when Greenspan tightened monetary policy too much and took the country into a recession.

Remember though, that a recession is a decline in GDP for at least two consecutive quarters, not a deceleration from 5.6% growth to somewhere in the 2% to 3% range. A GDP growth rate of 2% to 3% still means that economy is expanding, just at a slower pace. What is being forecast by many is a recession and a bear market.

I believe this has created a disconnect between valuations and stock prices.

How else do you explain that homebuilders are priced virtually at liquidation levels? The first time I wrote this the homebuilders were at 52-week lows, yet they have continued to fall. I, along with several smart people I know, have taken a bath on stocks like Toll Brothers (TOL Quote), Standard Pacific (SPF Quote) and Hovnanian (HOV Quote). I still hold to my belief that buying now will make you very happy long term.

How else would you explain the brokers trading at such a huge discount to its historic multiples, even though the companies see better deal pipelines in the future? Lehman (LEH Quote), which I own, and Goldman Sachs (GS Quote) are trading with forward price-to-earnings ratios of less-than 9. These are steals.

How else would you explain Applied Materials (AMAT Quote), which I also own, trading at a forward price-to-earnings ratio of 12.5 and a stock price of less than $15? Applied Materials trades at this low even though the consensus is for long-term earnings growth of 15%, the company has more than $2 a share in cash and there's very little debt on the balance sheet.

To view John Layfield's video take of this column, click here.