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I don't like to call a bottom. To me, calling a bottom or a top is useless. That said, I've sat on the sidelines for several months, piling up a cash position waiting for a sign of capitulation. Finally, on Monday 9/29 as the market dropped 700+ points, I entered the market. I increased the equity stake in all my accounts for the first time in months. With the VIX spiking above 40 and oversold readings hitting extremes, it was time to put cash to work. Whether or not we see a small 5-8% rally or a sustainable run, increasing exposure to select equities appears to be a smart move here.

I'm leery of the high valuations in consumer staples. I'm a buyer here in energy, healthcare, and certain financials. Large cap names with little debt and significant cash generation (MSFT, ORCL, ISRG) have limited downside at these levels.

Few can doubt the success of JNJ's business model. The firm has tremendous brand recognition, and despite poor performance on their pharma segment, earnings estimates continue to move higher (especially after their Q2 results in mid July).

JNJ's top line may never again grow faster than 10%, but with continued cost containment (pardon the alliteration) and share buybacks, EPS growth in the low teens is possible.

At today's levels, JNJ trades at a reasonable 15 times '09 earnings. The rule for JNJ earnings has consistently been to beat by a few cents per quarter. In this market environment, consistency like that demands a premium; its not a surprise to see this stock near new highs with a reasonable 2.6% yield.

JNJ has been helped with the currency translation, so like many multi-nationals, this most recent rally in the dollar, if sustained, could provide a headwind for earnings in 2009 and beyond.

I haven't made many moves over the past two months or so. The market is stuck in a trading range and despite the volatility, I haven't found many low risk high return plays. Over the past three weeks, I've underperformed as energy as pulled back, and while the momentum is gone from the sector, several look cheap enough to sustain a price floor in the stock even if oil drops to $100.

Other than attempts to find the bottom in Lehman, fishing in the financials still seems to be difficult. Even at these depressed prices, most of the larger financials are trading at or above book value. Assuming their book values are artificially inflated, the stocks can fall a bit before I would sense capitulation and find it worthwhile to go long. I've lightened up on my WFC short (I am one of the few investors who have shorted financials this year and have lost money on the shorts!).

From the long side, I was tempted to add to TEX or initiate a position in BUCY. Other the last two weeks, these would have been profitable. BUCY remains on my watchlist.

Financials I'd like to hop into on further weakness include WBS, FAF, and BAC.

As you can sense, there's little in the way of assurance on what I'm looking at. I find most securities to be fairly valued, and I think I'd lean slightly to the bearish side for the general market. Other than falling commodity prices, I don't see catalysts to improve the malaise of the economy.

CHK, a leading natural gas company, could have been purchased for less than 3x EBITDA as recently as Q1 2007. Even though it has become twice as expensive, CHK trades at just over 6x EBITDA and under 5 times P/CF.

The stock has come down a bit from its recent highs. This can be accredited to 3 separate issues. First, of course, is the pullback in oil and natural gas in mid July. The second was CHK's announcement of a possible quarterly loss due to their hedges (CEO Aubrey McClendon hedges a significant amount of production. This provides a headwind with rising natty gas prices and a tailwind for earnings when prices are falling). And finally, CHK announced an even more aggressing plan to raise cash. Since March, CHK has issued 2 large equity offerings, the latest being 25 million shares, and an additional debt offering. As it was pointed out to me, interestingly enough, CHK's share price has rised in the short and intermediate term following previous equity issuances.

CHK recently updated their production guidance and is now expected to expand production to the tune of 19% versus prior guidance of 15%. So while CHK trades at a premium to its peers, its strong growth and tremendous potential, among the most in the industry (see reports discussing Haynesville Shale. CHK will continue to easily generate cash.

Most sell-side houses have a NAV for CHK in excess of $90/share. If natural gas can remain above $10 and Chesapeake can tap into their potential, CHK has a high likelihood of nearing $90 over the next twelve months.

Looking at a 12 month chart of Western Digital, you'd consider it nonsense to hear the economy is in a recession or that we've entered a bear market. Shares of WDC have steadily gained over 50% in the past year. It traded at obscene valuations in 2007 and continues to be discounted by the market (trades at a FCF yield near 10%).

Despite the headwinds facing the economy in general and PC demand specifically, WDC is expected to grow earnings this year and could possible earn $4.50/share in 2009. Price competition has lightened up and WDC (and peers including STX) stands to maintain margins over the coming quarters. At the same time, prices for hard disk drives for the end consumer have fallen and should encourage increased demand.

WDC often trades at a discount to the general market. However, with a PE around 8, the stock is near trough valuations (16 months ago, WDC traded at an absurd PE of under 7). On top of that, margins are near all time highs while they continue to take market share.

Rarely do you see a stock firing on all cyclinders without having to pay extra for its growth. WDC is one example where I feel the market is wrongly worrying about future demand. Mgmt has smartly diversified via acquistions (especially Komag) and has shown the ability to be a leader in the HDD space. A 10 P/E on earnings of $4.50 shows that WDC can gain another 40% from these levels.

BSX was a top performing stock during the bear market of 2000-2002. It rose from below $7 to above $44. From its peak, BSX has drifted downward and now sits around $12/share.

The stock would be lower today if it wasn't for its attractive (backward looking) valuation. It trades just over 2x sales and 1x book.

From a fundamental perspective, however, Boston Scientific is struggling. It is facing increased competition and has failed to come up with blockbuster products (nor do any appear on the horizon, especially since they are using R&D as one area to enact cost cutting). Revenues for this year and next are expected to be below 2007 numbers. And considering the firm does approximately $8b in annual sales, marginal gains in one or two segments will not be enough to propel the stock much higher.

A macro look at the industry is less than promising. With the medical issues regarding coronary stents, growth will be stagnant and may possibly turn negative over the next few years. Considering BSX has the dominant share in this segment, additional organic growth for the firm from this area is unlikely.

Earnings estimates have actually moved up slightly, and while BSX will never trade at a severely depressed valuation, I think we'll see a price below $10 before we see $16. My longer-term price target is around $8/share, which equates to approx 15x 2009 earnings of $0.55 (lower end of estimates). Longer-term, BSX's lack of revenue growth should be the key driver of the struggling share price. Earnings that come from deleveraging, lowered costs, and margin expansion are not sustainable.

Rumors of a buyout have made AW to trade near $14, up over 50% in the last 3 months and nearly 20% in the last month. The news release is that AW and Republic Services (ticker RSG) would team up and AW shareholders would receive 0.45 shares of RSG for each share of AW. At current prices, each share of AW is worth $14.18 (hardly above its current price). Already, critics are out with a pessimistic view of the deal, partly because of Allied's leverage. Total debt for AW is over $6.6 billion, a full $700m above its market cap. RSG, though also levered, is in a slightly stronger position with its debt/equity ratio of just over 1.3.

On its own, AW remains a solid pick. FCF continues to improve (Q1 not withstanding) and is trading at a FCF yield of 7%+. They continue to have upside earnings suprises and may exceed $1/share in earnings this FY.

Allied is not in a terrible industry (solid waste management) despite the cyclical nature of most industrials. They are facing headwinds in the form of staggering high diesel prices, but they've managed to stay on target with their price increases. Additional fuel surcharges are added to customer's bills in order to decrease the impact of higher fuel prices. In 2007, organic revenue growth was 2.5% and nearly every business segment saw gains. At the same time, costs were almost flat. With AW's target of increasing margins each year, they should manage to hold their own despite the growth slowdown. In the first month of 2008, AW reduced their workforce by 2% and expect larvor savings of $20 million.

Outside of RSG talk, there are no short-term catalysts that will propel the stock higher. Fortunately, they do have a bit of upside momentum. $13-$16 is probably a tight trading range that may remain for a few months. If better prospects are found elsewhere, I may decide to sell AW in order to redeploy proceeds in more attractive stocks.

YGE is quite a speculative play and is not suitable for every portfolio. That said, it is arguably less risky compared to others in the industry.

Yingli is involved in the development, manufacturing, and sale of photovoltaic products in China. Like others involved with PV products, Yingli has seen its business grow substantially. 2006 net income was 30 million renminbi on revenues of 755 million. For 2008, YGE is expected to earn close to a billion Rmb on revenue of 7.5 billion Rmb.

The stock is correlated to the activity of the polysilicon market and price action of the larger solar names. I, for one, know nothing about polysilicon. I dabbled in this security because of its rapid growth and attractive valuation.

YGE's balance sheet is pretty clean. The majority of their LT debt could be paid with current cash. On last quarters conference call, Chairman Miao appeared upbeat and implied YGE was in a solid position to benefit to the gradual transition to green energy going on worldwide.

Depending on a number of external variables, a bear-case price estimate for YGE can't be much below $15 while a few quarters of better than expected growth could propel YGE to $28 and beyond. Please note that these are SUBJECTIVE price targets (based partially upon technicals). Its nearly impossible to slap a normalized P/E ratio on a company like Yingli. For those that believe in the potential of solar energy, YGE can remain in the portfolio for years so long as you have a strong stomach for the roller coaster price swings.

Wells Fargo will never reach a demise similar to Bear. Nor will its market cap drop by a third in a metter of days like Lehman had. However, given it had recently traded above $30 when this short was put on, WFC has room to fall.

At this point, consensus estimates still look for $2+ in earnings next year. This, without mincing words, is unlikely. Loan loss provisions are low at around 1.5% of loans.

WFC trades at over 1.8x book, and over 2.4x tangible book. Cash flow has dried up considerably and the stock trades at 30x cash flow (versus 3.7x back in 2006). Return on assets shrunk to 1.48% during the most recent quarter. Return on capital is a miserable 4.46%. Gauging by their valuation and profitability metrics, investors are counting on WFC's growth potential. But with such a focus on housing and credit cards, WFC is likely to struggle through at least 2009.

Assuming a back-of-the-envelope valuation of 10x earnings and 1.5x book, WFC should trade towards $20, and possibly lower, by the end of 2008 assuming no drastic recovery in housing or the economy. Loan loss provisions will continue to creep up while earnings estimates will continue to drift down.

I can clearly remember where I was when oil hit $40 for the first time. I was in college and interning for Merrill Lynch, fascinated at the rise of the commodity. I was convinced that it would seriously jeopardize US growth prospects. I was in the breakroom, watching CNBC, and staring at the Statue of Liberty. I had been growing more and more bearish of equities, not realizing the benefit of having a contrarian view of things.

Now, oil is more than 3 times that level and we still have yet to have a quarter of negative GDP growth and we may not for the remainder of 2008 (fortunately, regression analysis shows a six quarter lag of oil price and GDP growth correlation).

I won't speculate on where oil is going. But I must comment on some strange "goings-ons" in the market. I am becoming aware of the hints of the market being cornered. Hardly a month ago, oil was (appropriately, in my opinion) trading in backwardation of about $12 from spot out to 2016 (meaning you could get delivery in 8 years at a price $12 cheaper than the current price). Who could have possibly thought that the market prices wouldn't correct themselves and over time, the price would drop. It made sense. But today, that same 2016 contract has shot up nearly 50%. Oil is again in contango and 2016 oil eclipsed $140 yesterday and is over $142 today.

Oil at such a large contango is not necessarily reason to worry. One can argue that the it is simply mispriced. However, given the sharp deviation from the norm, I would expect that volume would intensify and traders and speculators would be all over the 2016 contract, trying to make a few bucks. However, volume was pitiful (it was especially low before the media got a hold of the action). It hints, and again, only a hint, that some fund is gobbling up every last bit of long-dated oil and is refusing to sell. This is dangerous. It could result in volatility and prices that we have not seen before. The market is still far smaller than global equity markets. While this isn't the 1980's when the Hunt brothers attempting to corner the silver market, we are still facing a problem. If in two months oil is at $300 or $30, I won't be too surprised.

FWIW, I'm not trading against this conspiracy theory. The market's failure at the 200 day MA has turned me less bullish. As I look more and more into the material and energy names, my only wish is that I'm not buying at the top. With bullish sentiment far from extremes, my guess is the upwards trend will continue.