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Is Anything Cheap?

Christine Benz

Retailers kicked their selling season into high gear Thursday, prompting shoppers to cut their holiday festivities short so they could queue up for the big discounts.

But even though it's easy to find a laptop or television at an attractive price right now, Morningstar.com readers say they are finding a dearth of bargains in the investment aisles. In a recent Discuss forum thread, I asked our readers to share whether they viewed any securities as attractive right now, and if so, to name names.

The thread showcased a range of opinions. To be sure, the naysayers were out in force, with numerous respondents saying they're simply not finding anything to buy right now. Other posters said they've identified selected opportunities in unloved areas, with municipal bonds, REITs, and blue-chip energy names getting a thumbs-up at current valuations. Still, others said that even though stocks might not be cheap right now, they may well continue to go up simply because competing asset classes--cash and bonds--are even less attractive at current levels.

To read the complete thread or share your own views on whether the market is serving up any opportunities currently, click here (http://news.morningstar.com/articlenet/article.aspx?id=620889).

'Zilch, Nothing, Nada'
On the question of whether the market is offering any attractively valued securities at current levels, some respondents were unequivocal: Nope.

Rforno believes that the Federal Reserve's policy of keeping interest rates ultralow has stoked artificially high asset prices. "I don't care what the pundits or 'experts' say, the era of free Fed money has led to artificial price inflation of a huge order of magnitude. There's nothing right now I am interested in buying at these price points."

In response to my query about whether there's anything to buy at current levels, rllucky was even more direct: "Zilch, nothing, nada. It's a greater fool's market at this point. It's my perception that the performance chasers are now running the prices higher."

On the same page was dndhatcher, who wrote, "Stocks are moving from fairly valued into the 'irrational exuberance' range simply because there is nowhere else to make a reasonable profit."

The dearth of opportunities has Zerodebt feeling defensive. "At this point I would consider taking some profits and hording the cash in a coffee can buried in my back yard (only slightly kidding). I could miss out on continued upside but having recovered (and then some) from the 2008 experience, the status quo is looking pretty good."

Several posters concurred that they're waiting with bated breath for better opportunities because none are presenting themselves right now.

Stockvapors wrote, "Like a dog watching his supper bowl at 5 p.m., I continue to watch and wait for that momentary panic that will send the market down 600 or 700 points. It hasn't happened yet but I remain hopeful that someone will get careless or have an accident and drop a couple of bones into my bowl. I am putting my most faith in the Fed. They have the ability to panic the market with just a casual remark. So until then, I watch and wait . . . and maybe drool a little."

The same goes for RCSinPGH, who noted, "I have some cash parked on the sidelines, waiting to pounce!"

Also counseling the deliberate approach is BMWLover. "My advice is patience; wait until you find something you really feel is worth the value, and then go for it."

Compiling a list of potential buys--but only at the right price--is Matthew9. "You can always find bargains in regards to individual securities but right now the pickings are as slim as they've been in quite a while. I have a very small list of potential picks that are on my watch list. A 10% to 20% market correction would pique my interest considerably."

'Maybe the Only Place Left Is Stocks'
Yet some posters argued that just because stocks aren't especially cheap right now, that doesn't mean they'll go down anytime soon.

Jimoak wrote, "This is pretty interesting; while my gut is in full agreement with the majority opinion here that there are no bargains, my mind is taking a contrarian view. A few months ago Bill Nygren from Oakmark had an interesting article on Morningstar.com. His thesis was that stocks still had a lot of room on the upside because there were no good competing investments offering better returns. He may have hit the nail on the head."

On the same page is Zerodebt, who opined, "Cash pays nothing (at least inflation is staying low for now). Bonds may have a long-term future but will fall as interest rates eventually rise. Precious metals apparently aren't precious anymore. Maybe the only place left is stocks (domestic and foreign) despite the high valuations."

Moreover, value investors are often early, as Bill1234 noted. "If you'd asked me this question at the start of 2013, I would have responded as most have here: there are no bargains, returns will be basically flat in 2013. Boy, would I have been wrong. So, I don't know how to value investments in this market. There are too many macro forces at work to even begin to guess. My only option is to stay the course, view my investments as income I won't need for a long time, and recognize that any losses I incur will be with house chips. Maybe not an optimal strategy, but I can live (and retire) with that."

'Bonds and Bond Funds Are Not a Disease'
Although no true bulls emerged in the discussion, some posters said they were finding a few opportunities here and there.

On the bond side, JupiterMars believes the sell-off in munis has been overdone. "Muni bonds--especially closed-end funds--are nicely priced for the holidays this year!"

Also spying value in bonds--specifically closed-end bond funds--is Uncleharley, who wrote, "There are a number of leveraged, fixed income CEFs that are bargains if someone is looking for dividends or distributions."

Indeed, even though investors are feeling antsy about their bond holdings in anticipation of interest-rate increases, MI1956 believes that they've unduly traded out of intermediate-term bond funds, especially if they plan to hold them for an intermediate time frame. "Bonds and bond funds are not a disease," this poster wrote.

But BMWLover believes that more trouble is in store for bonds, writing, "Bonds, even munis, will lose value as interest rates rise so I'm not looking at them too favorably."

'Not Much Else Out There'
Meanwhile, other posters are spying value in the equity market, even as some investors think that value is illusory at current levels.

Real estate investment trusts, which have taken a licking recently, topped several posters' shopping lists.

JimOak wrote, "Most of the REITs got clobbered when the taper talk started and they haven't recovered. I think (hope) the ongoing low prices are in part due to year-end tax selling, so there may be a partial price recovery early in 2014. But even if there is not a quick recovery, if you buy them paying 3%-6% in dividends and experience reasonable growth and reinvest the dividends, then down the road they can provide a nice part of your retirement income stream."

RCSinPGH concurred. "REITs [are] a nice bargain currently. Not much else out there."

At current levels, Weiwentg agrees that certain REITs are a buy; this investor favors Realty Income (O) and Health Care REIT (HCN). "I can't see any real reason why they sold off," this poster wrote.

Darwinian, meanwhile, is unconvinced that REITs look cheap at current multiples. "REITs just hit a record high, earnings-adjusted," he wrote, "With P/Es of 34, I can't see why anyone thinks they are bargains."

Uncleharley concurred that REIT enthusiasts "might be a little early."

Fxmulder was finding "a few picks in energy and basic materials. That's it."

Indeed, Foxgr01 was encouraged by Berkshire Hathaway's (BRK.A)(BRK.B) purchase of ExxonMobil (XOM) shares, disclosed in Berkshire's most recent filing of its holdings. "Follow [Warren] Buffett into ExxonMobil," this poster urged. "He's hardly ever wrong in the long term."

Meanwhile SFEISid commented that some noted hedge-fund managers are betting on beleaguered gold-mining stocks. "Gold miners are the closest thing to being on sale. They are very much a forsaken sector. But people like [David] Einhorn, [George] Soros, [Seth] Klarman, [John] Paulson, and so on have purchased them recently."

'Stupid Cheap Levels'
A handful of posters said they were finding bargains across asset classes, especially in categories viewed as sensitive to interest-rate changes or used as hedges against inflation.

Nick250 wrote, "The muni closed-end funds and the REITs I follow have fallen to 'stupid cheap' levels over the past month. There are a lot of folks well underwater on them and seemingly everybody is heading for the door at once for tax loss selling driving the prices down dramatically. I am not a trader per se, but I am retired and I am opportunistic when I can inexpensively add solid income to my portfolio."

Also spying value in rate-sensitive closed-end funds is Terryg: "Interest-rate-sensitive closed-end funds' discounts have increased and are on sale. But for some investors this can be a little disconcerting; checking performance and seeing share price go down. But for other investors, a little research will show discounts have widened and NAVs are either steady or increasing, creating a buying opportunity. I think with all the news that I hear on the financial talk shows about avoiding interest rate sensitive investments, many of these CEFs are 'oversold,' just due to headline risk."

In Rathgar's view, a unifying theme among some of the securities that have fallen the most--including emerging markets, REITs, commodities, Treasury Inflation-Protected Securities, and global bonds--is that they're often used as inflation hedges. As inflation has been mild, so has demand. "The stuff on sale are the unpopular investments that no one wants to talk about," this poster wrote. "These asset classes all tend to be inflation hedges. It seems like a good time to rebalance/trim out of stocks (especially small- and mid-cap U.S.) and into these categories."