April Phoenix Stock Update

By popular demand, here is the latest list of Phoenix candidates:

Brandywine Realty Trust (BDN), CapitalSource Inc (CSE), CBL & Associates Properties Inc (CBL), Century Aluminum Co (CENX), Citizens Republic Bancorp Inc (CRBC), Colonial Properties Trust (CLP), Complete Production Services Inc (CPX), Conseco Inc (CNO), Delta Petroleum Corp (DPTR), Developers Diversified Realty Corp (DDR), Domtar Corp (UFS), First Industrial Realty Trust Inc (FR), First Marblehead Corp/The (FMD), Furniture Brands International Inc (FBN), Gannett Co Inc (GCI), Genworth Financial Inc (GNW), Hercules Offshore Inc (HERO), Hovnanian Enterprises Inc (HOV), Huntsman Corp (HUN), ION Geophysical Corp (IO), iStar Financial Inc (SFI), Liz Claiborne Inc (LIZ), Manitowoc Co Inc/The (MTW), MCG Capital Corp (MCGC), MGIC Investment Corp (MTG), MGM Mirage (MGM), Pacific Sunwear Of California (PSUN), Patriot Coal Corp (PCX), Pennsylvania Real Estate Investment Trus (PEI), Petroquest Energy Inc (PQ), Popular Inc (BPOP), Quiksilver Inc (ZQK), Rex Energy Corp (REXX), Saks Inc (SKS), Sterling Financial Corp/WA (STSA), Sunstone Hotel Investors Inc (SHO), THQ Inc (THQI), Webster Financial Corp (WBS) and Zale Corp (ZLC).

There are 39 stocks on the list, compared to 58 stocks in the

last update on March 11

. As a reminder, the Phoenix stock list consists of stocks that pass the following criteria:

• Stock price between $1 and $5 (low-priced stocks)
• Down at least 80% from a year ago (beaten up)
• Market cap of $100 million or more (were once "real" companies)
• Net insider buying in the last six months (some downside protection from insider activity)

Of the 39 stocks on the list, 18 stocks, or 46%, show a bottoming technical pattern, an indicator that I watch for as a measure of overall market's technical condition. Genworth Financial (GNW), which is showing a double bottom, is a good example (click to enlarge):

The portion showing the bottoming pattern is largely unchanged from my last update, which had 43% of the list showing this pattern.

Still too early to buy Phoenix

Given these readings and the fact that the major market averages appear to be overbought, my best guess is that we are witnessing a bear market rally that is on its last legs. I would be very cautious about committing funds to a Phoenix strategy in the short term.

Comments

[James Levy:]

Mr. Hui,

Thank you very much for generously sharing your work on the Phoenix Strategy, and the cautious words of advice concerning the current bear market rally. I am convinced that this strategy will pay off handsomely when (if?) sustained economic growth resumes. Please continue to post these updates from time to time, they are extremely useful.

Apr 05 04:04 AM

[InvestBaboo:]

Dear Author:

Thank you for your first Phoenix list. I made full use of the list, ran them through my analysis tools, and selected several stocks to buy. That strategy has turned out to be profitable.

However, after making a very good analysis and bringing to readers attention a bargain list you are now forecasting an end to the rally because it is "OVERBOUGHT" and it is a bear market rally? I think human beings go through periods of optimism and pessimism and what they write during either period reflects their position in the cycle. I see no chart or market metric that supports an end to the rally. Facts please when you make an opinion like this?! What exactly is the market metric you saw that tells you the rally is ending? Have you looked at the daily and weekly charts of various sectors and industries and companies and arrived at this conclusion? Are there momentum indicators you see turning south that are causing you to say this? Lacking any of these I would ascribe your negative conclusion to the peiod of the cyclical human thinking you are on and discount that conclusion. I follow the old adage "The trend is your friend till the bend at the end!" and I happen to see no bend at the present.

Apr 05 03:15 PM

[toomuchgas:]

I admit that I bought a few of those as "value" investments at much higher prices. Sooner or later there is going to be a turnaround. Right now though I'm gun shy and am sticking with big cap with strong balance sheets until we really see some strength.

Apr 06 03:26 PM

[Glen Bradford:]

Your strategy looks very familiar to that of the later years Graham. Check 2 1 2, Greenblatt.

Mohnish is making a killing applying this strategy.

www.gurufocus.com/news...

I like your style. Consider yourself followed.

Apr 06 08:26 PM

[Glen Bradford:]

Forgot to mention, I have checked and verified CNO.

So far I'm up over 300% in a couple weeks.

I'm still buying, in fact I bought today.

Glen

Apr 06 08:30 PM

[Cam Hui:]

Glen

This is a "fallen angels" strategy that does not bear any resemblance to the ones you mentioned. We are deliberately looking for stocks on the verge of going bankrupt, but rebound from the near-dead as the economic outlook revives. That's why I call it a Phoenix - stocks that rise from the ashes.

Such an approach requires a high degree of risk control, otherwise returns could be close to -100%!

Cam

Apr 07 12:33 PM