An Intelligent Investor's Response to Government Gridlock

NEW YORK (TheStreet) -- I'm fuming about the shutdown of the U.S. government. I'm so angry I'm breaking out in a sweat and my face is flushed. Then I remembered that I turned the heater in my office up too high and I'm sitting in an unintentional, homemade sauna. And I'm not even Swedish, Finish or Alaskan!

Now that I've lowered the thermostat I've determined not to let this unfortunate political version of "your mother is fatter than my mother" distract me from the opportunities it offers.

An intelligent, emotionally disciplined investor wants to capitalize on how the government's gridlock impacts our investments and the financial markets.

If you're properly diversified, use hedges, and believe in asset allocation, you're not hurting too bad yet. The S&P 500 is still above the 1,680 support level and the Dow hovers above 15,000.

As important, the stocks you've been yearning to buy are slowly going down in price. Are you alert to the current price levels of your favorite "watch list" equity rock stars?

Speaking of being alert, because I'm a subscriber to TradeStops, the web's premier online risk management service for investors, I received an alert telling me two stocks I've been waiting to buy are nearing my personal buy-limit prices.

One of them happens to be a world leader in oil and gas rig equipment, National Oilwell Varco ( NOV). National Oilwell Varco provides the major mechanical components for land and offshore drilling rigs, as well as complete land drilling and well servicing rigs. That's a hugely profitable business.

It includes tubular inspection and internal tubular coatings, drill string equipment, extensive lifting and handling equipment, and a broad offering of down-the-hole drilling motors, bits and tools.

NOV, as I like to abbreviate it, also provides supply chain services through its network of distribution service centers located near major drilling and production activities worldwide.

Using TradeStops I receive an alert every time NOV corrects 4% from its most recent closing price high. On Sept. 20 it hit a short-term high price of $80.27. Ten days later it fell almost 4% to $77.20.

On Oct. 1 I watched NOV carefully with the hope of buying low. It opened at $77.34 (while I was snoozing here on the West Coast) and by the time I woke up it popped above $78.

That doesn't bother me because as the following one-year price chart demonstrates, NOV has had quite a run since late April. The trailing 12-month (TTM) Ebitda line suggests earnings should be robust when NOV next reports on Oct. 25. Still, I'm willing to wait for a better entry price.

NOV Chart NOV data by YCharts

In late September NOV announced it plans to spin off its distribution division into a separately traded public company sometime in 2014. The spinoff could be an upside primer for the stock price.

Historically, we've learned that spinoffs have a tendency to generate higher total value for shareholders. Within a year or less the original NOV and its spinoff are likely to have a higher combined value than NOV's current price.

Jim Cramer and Stephanie Link of Action Alerts PLUS wrote about the spinoff, "... We like the recent management decision to spin off 85% of its distribution segment, which we believe creates $7 to $9 per share in upside. Also, we like the $3 billion in acquisitions the company has made, which will lead to strong synergies (we estimate $0.20 accretion in first year) and margin support."

Another way investors can be smart and benefit from the current-events-driven market pullback is to invest like a billionaire activist. Take Carl Icahn, please!

Do you know which publicly traded company is this billionaire's biggest single position? You're correct if you said Icahn Enterprises ( IEP).

Most of us know that the first place we should invest is in ourselves, so it's no wonder Icahn, in his latest 13-F, disclosed that over 33% of his personal portfolio is in shares of his own company, IEP.

The company, which is structured as a Limited Partnership, engages in the investment, automotive, gaming, railcar, food packaging, metals, real estate, and home fashion businesses in the United States and internationally.

Icahn's 13-F disclosed that he bought his shares of IEP between $36.50 and $42.50 a share. On March 1 he purchased an additional 15,900 shares at around $63. Shares have since hit a 52-week high of $90.75 and have cooled down to $84.67 as of Oct. 2. No signs of any insiders selling either!

The following chart tells the one-year price story for IEP. The other lines tell us about the PE ratio (TTM) which is a rich 21.59. The future (one-year) estimated PE of only 12 suggests the stock may not be overvalued.

IEP Chart IEP data by YCharts

I'm not suggesting that we buy IEP or NOV tomorrow. I'm suggesting that we buy incrementally on any big market swoons.

This government shutdown just may be different enough and more serious than any we've experienced in modern times, especially if it ends up with "debt-ceiling paralysis."

If the U.S. government's debt ceiling isn't increased by Oct. 16, for the first time the Treasury won't be able to pay the interest owed on all kinds of government debt instruments from T-bills to bonds.

In a nationally televised interview President Obama told viewers that even though gridlock in the nation's capital is nothing new, "this time I think Wall Street should be concerned."

He added, "When you have a situation in which a faction is willing to default on U.S. obligations, then we are in trouble."

These words alone could send the stock markets reeling Thursday morning, and if we're lucky maybe the correction will be big enough that we can buy great companies and sectors at prices we haven't seen in week or months.

That's not just optimism speaking, that's being a rational, intelligent investor. Stay calm, be defensive, and set your buy-limit prices low enough to scoop up real bargains before the market's rebound as they always, eventual do.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Marc Courtenay is the founder and owner of Advanced Investor Technologies, LLC, as well as the publisher and editor of www.ChecktheMarkets.com.

Courtenay holds a Master's of Science degree in Psychology from California Polytechnic State University, and is a former senior vice-president of Investments for two major brokerage firms. He's been a fiercely independent investment "investigator" and a consulting contributor to the investment publishing world for over 30 years. In addition to his role as an investment publisher and analyst, he serves as a marketing consultant to the investment media industries.

In his role as a financial editor, he specializes in unique investment strategies, overlooked stock investments, energy and resource companies, precious metals, emerging growth companies, the prudent use of option strategies,real estate related opportunities,wealth preservation, money-saving offers, risk management, tax issues, as well as "the psychology of investing". Because of his training and background in Clinical Counseling and Psychology, he enjoys writing about investor behavior, the ¿herd mentality, how to turn investment mistakes into investment breakthroughs and the stock market's behavioral trends and patterns.


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