The market recovered today as the three major indices all posted incredible gains. The last 13 days have been rough for the economy. Fear has controlled the markets and Tuesday provided investors with gains rather than losses. The future is on everyone's mind, and as investors we hope that the worst is behind us. I personally believe the market will go up from this point. But I expect bumps along the road as investor fear is at an all time high.
There are stocks that can prove to be good investments during this rough time. Several stocks saw gains on Tuesday of more than 10%, erasing a portion of the loss experienced during the last month. Yet there were other stocks just as fundamentally sound that did not see the level of gains in which I expected. I believe this makes some stocks a good investment since the price is still low and will be affected less if the market turns. The following stocks I consider have low prices and show potential - based on fundamentals - to increase during the short and long term.
Applied Materials (AMAT) has lost nearly 13% of its value over the last month. The stock posted a gain of 3.16% on Tuesday, very similar to the semiconductor industry average. The stock is consistent and has traded in a range between $10-$20 for the last five years, occasionally slipping above or below. The company has paid a dividend since 2005 that has never decreased. With a stock price of $11.44 the company is trading near the bottom of it's range with a P/E under 10.
During the last three quarters the company has posted revenue and net profit that have not been topped in over 20 years. I see this fact as encouraging. The company has traded in the same range for five years but is now producing much better financial numbers. I rate this stock as a long term buy. The company has very little debt in comparison to income and assets. In May the company announced guidance below analyst expectations between $2.57 billion and $2.77 billion which would still keep the company on track to deliver one of its best financial years.
Exxon Mobil Corporation (XOM) is trading at a 13% loss over the last month, with nearly 8% of it coming during the last five days. The stock closed the day at $71.64 with a P/E of 9.41. The company posted quarterly earnings that were disappointing to many investors. However, revenue increased more than 35% and net income saw a gain of 41% year over year. I consider this to be a very strong quarterly report when you look at the oil leak in July at Yellowstone River. Another reason for the company's loss is the price of crude oil, which is trading near $80. I believe this company to be a strong buy at this current price. Oil is not going to stay at $80 and when the price begins to increase so will Exxon's stock which makes this a great investment both short and long term.
Comcast Corporation (CMCSA) has lost nearly 19% of its value, with 9% of the loss coming over the last five days. The company released earnings on August 3rd with an unbelievable amount of growth in revenue. The company reported revenue of $14.333 billion, an increase of 50% year over year, beating estimates. Earnings per share increased from 0.31 in 2010 to 0.37 during the last quarter. The company has continued to show growth year over year and most believe the acquisition of NBC Universal will benefit the company.
At the current price of $20.71 this company is a strong buy, trading with a P/E of 15. The stock should begin to trend higher as investors adjust the price to the company's previous quarter. As a long term investment I would watch the stock closely. The market is competitive with DISH Network (DISH) and DirecTV (DTV), showing similar levels of growth. The industry has also seen new competition from companies such as Verizon (VZ) and AT&T (ATT), offering products that are showing growth as well. The market is large enough for these companies to be successful but maybe not at the same level of growth. Regardless of the competition, the stock is cheap and I believe the acquisition of NBC Universal will prove valuable.
IPG Photonics (IPGP) stock increased nearly 6% during Tuesday trading. I believe it's only the beginning of the large returns this company will give to investors. The stock is trading down 22% during the last month with nearly 9% coming over the last five days. The amount of loss this company has experienced defies fundamental logic. The company recently released record financials to compliment its continuous growth. Revenue increased 81% year over year and 22% over a strong first quarter. Net income for the quarter increased to $30.7 million from $10.3 million year over year. During 2010 the company recorded record revenue which increased more than 60% year over year. This year is on pace to be much larger than 2010 as the company has reported its best three quarters in its history. The company has little debt in comparison to total assets and net income. The fundamentals of this company are great and it shows no signs of slowing down. IPGP trades with a P/E near 30 which means it has the potential to slip lower with another downtrend. I am confident the price of $57.63 will return high profits within one year regardless if the stock trends lower during the short term.
Lululemon Athletica (LULU) is a stock that I was confident would trend lower. Not because of any fundamental reason but rather its P/E is more than 50 and the company has seen large gains over the last year. During the last month the stock dropped more than 16% with 15% coming over the last five days. I now believe this stock is at a good opportunity and the company has proved its ability to expand and create revenue. The financials of this company have improved each year for the last five years with 2010 witnessing more than a 50% gain in revenue. With annual sales of $711 million I believe there is room for growth in this company. Women's exercise equipment and clothes are an open market and LULU is capitalizing and becoming more popular. Regardless of the immediate price action I feel this stock is a long term buy especially at the current price of $50.44. The stock should experience great returns for years to come.
Intel Corporation (INTC) is an innovative company that very seldom sees much in price action. Yet, over the last month the stock has lost over 10% of its value from its previous 52 week high. At $20.60 the stock offers many benefits to ownership. It offers a solid dividend that has not decreased during the last five years. It offers a stock that is safe in a possible recession with its low in 2009 reaching $12.40. It also may increase past its 52-week high of $23.96, the price before the downtrend began. I especially like this stock as I believe the company has several compelling products that could revolutionize the technology sector. They include the company's Atom processor which will bring us Smart TV. Smart TV is a fully interactive experience where users can access social media sites, browse the internet, or play games through TransGaming. This project consists of multiple partnerships and I believe it will completely change the way we use television. As a result I feel that any price near $21 will prove to offer great returns for many years to come.
Bristol Myers Squibb Company (BMY) has seen a loss of 7% during the last month, which outperformed the S&P. The company has seen significant gains in revenue over the last four years. The company recently raised guidance for full year EPS. With several key developments regarding Bristol Myers and the FDA, most would agree the outlook is strong for this company. The company pays a strong dividend and has increased its dividend consistently over the last five years. After witnessing the company's stock strength during the downtrend I believe this company would be a good investment during these uncertain times. The stock is sure to rise with the market. I have no doubt the stock would have posted new highs if not for the market panic. With a P/E of 14 and a market cap of $46.2 billion I believe there is room for growth as the company has several products in a growth and development phase. I would invest in this company to minimize any loss in a downtrend and capitalize on gains with dividends. If the market makes a full recovery BMY should still see nice gains, making this a good investment in uncertain times.
There will be a lot of uncertainty surrounding the economy for the next few months. The direction of the market is unknown. We like to think the downtrend is over after Tuesday's nice gains. But we must remember 2008, and I will reiterate that I do not believe this market will experience another crash such as in 2008. However, It is good to look back on these times to remember past experiences.
Dow Jones Gains Loss
To most investors this trend is well known but it's important to realize the recession of 2008 did not happen overnight. The market almost always jumped after a loss. The difference: The losses were always greater and the highs were always lower. The downtrend in June brought us down to 11,897, then we had a gain in July, only to fall in August to 10,800. The trend we are currently experiencing shows many similarities to the above chart. It is something we must keep our eyes on as these gains are nice but the losses could be greater.
I have stated I do not believe we are going to endure another recession such as 2008. Most of the large companies are posting much better financials, the large financial organizations such as banks are performing much better, and the automotive industry is thriving. The economy still has issues but the issues are not as severe as what we experienced in 2008. Therefore we may see more losses but not to the extent of 2008.
I mentioned that individual companies are performing better than in 2008. This fact was strongly considered when picking the above stocks. Exxon is trading near the same price as it was in 2008 and pays a higher dividend versus that time period. IPGP and LULU are both expecting more growth and have shown no sign of slowing down, yet have decreased in price, creating value. AMAT, CMCSA, INTC and BMY all pay higher dividends in comparison to 2008 and are performing much better fundamentally versus that time period. Each of these companies serve a different purpose within a portfolio. Some are for growth, some for value, and others provide protection. Based on the areas in which I have discussed, I believe each of these companies will serve a value within any portfolio and present a good opportunity if bought at current prices.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in XOM, IPGP, INTC over the next 72 hours.