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By Matthew Coffina, CFA and Jeremy Glaser | 08-25-2015 04:00 PM

Coffina: Few Screaming Buys After Recent Sell-Off

Morningstar StockInvestor's Matt Coffina explains why he still likes Baidu and Time Warner, but why he isn't rushing to put cash to work.

Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. There has been no shortage of volatility over the last few days. I'm here with Matt Coffina--the editor of Morningstar StockInvestor newsletter--for his take on what's driving it and if it's opened up any opportunities.

Matt, thanks for joining me today.

Matt Coffina: Thanks for having me, Jeremy.

Glaser: Let's start with your thoughts about what's behind this volatility. I know it's difficult to pinpoint any one cause or any one day's market movement. But what do you think has really caused global stocks to sell off so much recently?

Coffina: Well, it seems like there are a few causes--a lot of which have been simmering for years now. The most immediate cause would be concerns about China's economy. There seem to be some very clear signs of slowing over there, but also to some extent a panic by the central government in their move to devalue the currency to increase liquidity. I think investors are starting to lose faith that the government has a handle on the situation. That's causing a lot of people to be worried, and there are certainly follow-on effects somewhat to the U.S. but especially to other emerging markets and specifically markets that are dependent on exports to China--especially commodities.

Besides that, I think people are also concerned about the Federal Reserve's first rate hike. The Fed really hasn't backed away from raising rates later this year--maybe it'll be in the September--despite these concerns about global economic turmoil. Then, maybe the most important cause is that the market has had such a great run over the last six years here. Stocks were relatively fully valued, in our view, prior to the sell-off. And to some extent, I think that's just left stocks vulnerable. So, investors should expect over an investing career that you are going to see dozens of corrections. It's been quite a while since we've had one, and I think that's a big reason why this particular correction is a getting a lot of attention. Investors sort of forgot what it felt like. But corrections are really par the course when investing in stocks. Investors should be prepared for them and should fully expect them as a totally normal part of stock market behavior.

Glaser: So, there's nothing in this that makes you nervous?

Coffina: Well, again, I think stocks were fully valued before this correction; they look less so now. If anything, I'd say the stock market today looks about as attractively valued as it has in two or three years. But stocks certainly aren't screamingly cheap. I wouldn't say that this is a pound-the-table buy opportunity by any means. But because stocks were fully valued before this, sliding 10% as we have in the last few days sort of brings you back to a fair value kind of range.

A lot of the concerns that are out there--China in particular--I think those are very real concerns and something that investors should be worried about. We've seen a lot of specific sectors sell off worse than most: anything having to do with commodities; energy, in particular, with the slide in oil prices over the last year; there are some sector-specific issues going on in railroads; people are concerned about declining coal volumes and slower industrial activity; media stocks have been selling off a lot because of concerns about cord-cutting; and, again, anything related to China in any way.

So, I think there are good reasons to be concerned, and I think there are fundamental reasons. Arguably, investors have just been too complacent about these risks as they've built up over the last few years. But my message is that it's definitely not a time to go buy everything in sight; it's also not a time to panic by any means. A correction like this is, again, totally normal behavior for stocks, and stocks certainly look more attractive today than they did a couple of weeks ago.

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