Skip to comments.One Outrageously Cheap Stock
Posted on 03/09/2008 6:01:33 PM PDT by BenLurkin
You know that political bumper sticker that reads, "If you're not outraged, you're not paying attention"? It might as well apply to the market these days. Starting in November, stocks started dropping ... and they haven't recovered.
Good -- even great -- companies are being sold down to levels far below their true worth, and investors are losing their savings. It's outrageous!
A shocking and somewhat interesting statistic A whopping 79% of all stocks traded in the U.S. are down over the past four months. That's 5,339 names in the red. Another 3,032 of those names (fully 45%) are down 15% or more. And stocks such as Intel (Nasdaq: INTC), Verizon (NYSE: VZ), DISH Network (Nasdaq: DISH), and even Wrigley (NYSE: WWY) haven't returned a penny for the past three years.
So if you've lost money of late, don't feel bad. There has been no hiding from this downturn.
But let's also be honest: It hurts.
Time to panic sell It's outrageous and it hurts, but what's the individual investor to do? The market is a monolith at times, and it can be hard to sway.
Case in point: Barrett Business Services. I found this tiny West Coast professional employer organization and staffing company during my work as the micro-cap analyst for our Motley Fool Hidden Gems service. At the time, it was trading for a little more than $20 per share. I liked the CEO, I liked the balance sheet, I liked the track record, and I thought it looked cheap.
What's happened since? You guessed right: It's dropped about 25%.
What's your next move? See, the market has it in its head that the economy is worsening and the consumer is weakening. When fears are that broad, everybody gets punished.
Pain isn't reserved for companies that struggle to turn a profit, such as Wind River Systems (Nasdaq: WIND). Companies such as Fannie Mae (NYSE: FNM) that have seen their business fundamentally altered by the credit crunch are also hurting. The market has even stung "defensive" plays like Clorox (NYSE: CLX).
And while losing money can feel outrageous, the most outrageous part about all of this is that even great companies are getting caught up in the chaos. Some of this makes sense (the economy is getting worse, after all), but some of it does not (it won't be terrible forever).
But back to Barrett: It still has a strong balance sheet, it's buying back shares and buying up weakened competitors on the cheap, and it's paying shareholders a nice 2% dividend. Could the stock drop further from here? Of course, but I still think it's outrageously cheap.
And I'm not alone. CEO Bill Sherertz told analysts on the last conference call: "If you guys want to sell [the company] down to five times earnings, maybe I will just buy the whole [expletive] thing."
Enough [expletive] said After backing out cash on the balance sheet, Barrett today sells for just 7.0 times earnings. But that's not necessarily the point. It's suffering along with a few thousand more stocks on the market.
Investors, then, have two ways to express their outrage:
Withdraw money from the market and wait for current market conditions to subside. Put more money in the market and take advantage of current prices to build a portfolio of excellent companies on the cheap. We're all about the latter strategy at Hidden Gems, and we're excited because there are so many more buying opportunities today than there were last summer, when our returns were flying high. Fortunately, investing isn't about short-term returns; it's about making a fortune over the next decade or more.
While market conditions like those we have now can be painful, they're can also help you amass a fortune. So swallow hard, and start buying
Therefore, without asking anything unfitting of you . . .
what’s a reasonable thing to do with limited capacity to do?
If you have cash, and need more stocks, it is an excellent buying opportunity. The market is pessimistic, and is factoring in the recession that has barely begun. As soon as the trough is through, stocks will rebound sharply, probably up 5% on a few different days. You just have to be IN the market befor that happens.
Unless Bernanke and a Dem president bake us some stagflation. Then we're all scr*wed.
I've been thinking about nailing those twins for at least 45 years.
And that Judy Jetson chick too.
“So swallow hard, and start buying”
I have stock that has dropped 8% while increasing production and selling out on its’ product.
You're too late, homey. Been there, did that.
I like T-bills. Why take any more hits on YOUR money? Down 20-30%? Try 50-60...
Re-buy lower. Never chase a downward market. Love these folks that think it is some kind of sports game. BUY MORE! yea right! Is Jim Cramer your mentor? HA!.
1-3% upside beats 20-30% downside any day. T-Bills folks.
Book mark this one with all my correct posts on the market in the past 3 years. Like selling Google and buying puts when it was 700$ No one like that one either.
I'm thinking of selling it tomorrow and move the money into something safe like "Wal Mart".
bump and buy, I guess.....
1-3% in T bills? Can’t I get CDs that pay more?
I think you said that a few days ago, Monday is around the corner.
The next upside in the market is going to be in 5-10 years. You will have plenty of time to get back in.
The best deal ever was Corning (GLW) at $1.00 back in late ‘02. Fell from $105 in late ‘00 to $1.00 in just two years. 150 year old company, not some fly-by-night tech stock. Been stable now in the mid-20s for a while.
Too early to Buy in right now. All of the bad news will continue until May when the tax rebate checks get mailed.
By mid-May, we’ll be at the Bottom. By November, lust and greed will have reared their heads above Fear, and we’ll be back to the Long Boom.
T-bills are the last line of defense. This market has not even started to unwind. All the REAL bad news has not been revealed.
The rear view mirror is always clear and the windshield covered in fog.
God speed to those who still think that holding is prudent.
Tomorrow, around 11 "we're" making a decision.
I don't hear anyone telling me NOT to sell it, LOL!
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