Facebook continues to get the big thumbs down from investors, with losses suffered for those who supported the third biggest initial public offering (IPO) in US history at about 16%.

The fact lead underwriter Morgan Stanley downgraded revenue forecasts for Facebook on the morning of the IPO, after raising the price and volume of shares to be sold, really isn’t a good look. That was followed by a trading glitch on the NASDAQ that saw trading of the stock delayed by 30 minutes.

Wall Street has stitched up Main Street horribly in this Facebook IPO process and the ramifications for US investment banks are not good in terms of further regulation. Watch this space, this Facebook IPO debacle will have legislative and regulatory ramifications for the entire US investment banking industry. For those dabbling in US stocks, I’d be shorting Morgan Stanley shares and buying an Australian Bank dollar for dollar. There’s an idea.

Still bullish

It seems I am the lone voice of Australian equity optimism again. It’s lonely, it’s hard, it opens me up to all sorts of criticism from those greyer than me with different agendas.

Nobody sees it, but recent market history suggests there could be a V-shaped index and risk equity recovery from this trading correction. Nobody is positioned for that scenario right now.

After nearly five years in what has been a bear market for Australia equities, I am becoming quite conditioned to sharp falls in the benchmark ASX200 Index. I had a quick look back at the last two years in Australian equities and while I wasn’t surprised to see at least eight sharp index falls, what interested me more was every one of those falls was followed by a complete recovery to the level the index started falling from.

Of course, this short-term stuff is no guide to where the index is in two years from now, but it is telling you to shut your eyes and buy something in this dip as history suggest we all underestimated the speed and scale of short-term recovery. If nothing else, you should buy for a short-term trade because every previous recovery has been V-shaped.

Risk, growth and sustainable equity yield are stunningly cheap. The cheapest I have ever seen in my career. That’s all I know and that’s why I continue to recommend taking advantage of fear in the right stocks.

What to buy

I think the Australian Dollar’s 30-day downtrend is bottoming. This means you buy resource stocks and those who service them. Resource stocks and resource service stocks have been treated as negative derivatives of the Aussie dollar and the Aussie bouncing back to slightly above parity (101US cents) should translate to solid short-term gains in resources and resource service stocks. The biggest macro shorts in Australia are in resources and resource services and the scene is set for a solid short-squeeze.

A bottoming Aussie dollar is telling me to rotate from expensive defensives to more cyclical, financial and China-facing equities. You can generally buy those names on up to 50% price to earnings ratio (P/E) discounts to perceived defensives and that relative and absolute rating gap is simply too wide, particularly given that the high earnings growth in fiscal 2013 won’t be in defensive sectors.

As you know, I am focused on to 2013 financial year. The market is focused on the next Bloomberg headline about Greece, but from an investment perspective, I am focused in FY13 and where our analysts can see clear growth plus yield, at a deep value multiple. Pick and stick, trying to look forward taking advantage of the market’s pricing of the present.

New to my list

I am going to add Woodside Petroleum (WPL) to my high conviction large-cap buy list. Woodside has been hit as hard as all leading resource stocks, despite having contracted LNG prices and volumes. The spot LNG price is actually up at a record high, which means as Woodside’s legacy contracts, roll off higher prices should be achieved for new contracts.

The company recently sold a 15% stake in Browse to the Japanese group MIMI at a valuation that stunned all of us. However, Woodside has been one-way traffic south in the past month, losing around 16% from the post deal highs.

Woodside has been treated like any other oil and gas stock as WTI Oil came down, but is now back to the cheapest forward P/E I can ever remember yet the company is past the capex/delays/cost blowout phase and is ramping up Pluto production. It also has a new CEO, Peter Coleman, who seems to like to under-promise and over-deliver, unlike previous Woodside management.

The company is trading on 10.8-times calendar-year 2013 earnings, offers +30% earnings per share (EPS) growth and a 4.78% yield. That is a very attractive set of numbers and I see Woodside as low-risk, high-reward buying at current prices. The company also has an investor briefing day on Monday 28 May, which I believe should be positive. In fact, it only has to be ‘non-negative’ to be positive for the share price.

Woodside offers high quality assets, high barriers to entry, high growth, pricing power, high quality management, a high quality Board, rising return-on-equity (ROE), and a rising dividend yield all for a value multiple. That’s why it’s coming into my high conviction large-cap buy list.

That large cap list is now: ANZ, AMP, BHP, CWN, FMG, NAB, SVW, STO, TLS, WBC and WPL.

Go Australia, Charlie.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Anyone should, before acting, consider the appropriateness of the information in regards to their objectives, financial situation and needs and, if necessary, seek professional advice.