The Mini Ride of the Phoenix

Includes: DIA, QQQ, SPY
by: Cam Hui, CFA

I have written often about the Phoenix effect, or the profit potential of holding low-priced, beaten up and near-bankrupt stocks in a bullish recovery. Bespoke recently documented an example of the performance of such a basket here.

When the Phoenix does finally rise, the upside potential for a portfolio of such stocks is a triple or more. However, I wouldn’t rush out and buy them yet. Wait for a market rally and a re-test of the recent lows before buying in. I would expect that re-test to occur in the next few months.