When I start feeling like there is no good reason to be in the market, and I should roll up the tent and sell out, I now know this is a signal to buy, not sell. This is how I’ve been feeling as of late. Warren Buffett says, “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” So I say, why not take advantage of the value created by the current turmoil and start a position in the following stocks before the market sorts out the global debt issue and rebounds? After the economic storm clouds clear, (and they will, because they always do) you will most likely have missed the move and be buying in at much higher prices.
Buying low is not an easy thing to do, I know, but if you have a long-term time horizon, you will most assuredly make money. Markets don’t stay down or up for long, or Wall Street wouldn’t make any money. The Wall Street traders thrive on volatility. Markets fluctuate on a continuum, and we are bouncing along the bottom of it right now -- ergo, it’s time to load up. The very bottom of the market, during March 2009, was the time to buy, but no one I knew was buying; everyone was running for the exits at the exact time they should have been piling in.
Many analysts are predicting a recession going forward. I don’t see it happening. How soon we forget: Just a few months ago you heard the odds of a double-dip recession were minimal, and now it is virtually assured, according to the crowd. In my experience, the crowd is usually wrong. There may be more volatility in front of us, even with the more than 10% drop in the market recently and the inevitable restructuring of Greek sovereign debt; nevertheless, this may be a good point to start a position in these buying opportunities.
I believe we are nearing the end of the correction, and it’s time to start nibbling at the amazing buying opportunities created. Many stocks look really cheap and have dropped over 10%. These seven S&P 500 stocks have dropped by nearly 30% on average year-to-date, and are primed to rebound due to a reversion to the mean, if nothing else.
The mean reversion strategy is based on the mathematical premise that all prices will eventually move back towards the mean, or average, return. Thus, if a stock is underperforming, its price will move towards its average value when the market rebounds. Many of these stocks have been taken down in sympathy with the global market sell-off or due to headline risk. Stock market correlation is at an all-time high, but when the market recovers, I expect these stocks to experience a significant rebound.
With the Fed’s recent announcement that rates will remain at ultra-low levels for at least the next two years, we can see that fixed income instruments such as bonds and CDs provide little protection against inflation, driving investors into stocks in search for yield. The Federal Reserve guaranteed super-low interest rates for two more years, an unprecedented step to arrest the alarming decline of the stock market and the economy. Bernanke said the Fed will meet for two days in September instead of the planned one day to discuss its options to provide additional monetary stimulus, among other topics. Bernanke went on to say he expects growth to pick up in the second half of the year. However, if signs of a recovery fail to materialize in the near-term, the FOMC may consider additional policy tools at its September meeting. This bodes well for stocks, creating a virtual win/win scenario for equities.
Moreover, most of these stocks are trading well below consensus analysts’ estimates; several have recent upgrades and positive analyst comments and positive catalysts for future growth. Below is a table with detailed statistics regarding each company’s current performance information, followed by a brief review of each company, detailed current analysts' estimates and up/downgrade activity, followed by a chart of the company's key statistics. Nonetheless, this is only the first step in finding winners for your portfolio. Please use this as a starting point for your own due diligence.
The seven S&P 500 stocks are: Boston Scientific Corporation (BSX), Frontier Communications Corporation (FTR), KeyCorp (KEY), Regions Financial Corp. (RF), Huntington Bancshares Inc. (HBAN), LSI Corporation (LSI) and The Interpublic Group of Companies, Inc. (IPG).
Current Performance Statistics
Boston Scientific Corporation develops, manufactures, and markets medical devices used in various interventional medical specialties worldwide. The company is trading below analysts' estimates. Boston Scientific has a median price target of $7.50 by 21 brokers and a high target of $11. The last up/downgrade activity was on Jun 24, 2011, when UBS downgraded the company from Buy to Neutral.
Frontier Communications Corporation, a communications company, provides regulated and unregulated voice, data, and video services to residential, business, and wholesale customers in the United States. The company is trading below analysts' estimates. Frontier has a median price target of $8.50 by 15 brokers and a high target of $10The last up/downgrade activity was on Mar 16, 2011, when Stifel Nicolaus upgraded the company from Hold to Buy.
KeyCorp operates as a holding company for KeyBank National Association that provides various banking services in the United States. The company is trading below analysts' estimates. KeyCorp has a median price target of $9.00 by 25 brokers and a high target of $11. The last up/downgrade activity was on Jul 20, 2011, when RBC Capital Markets upgraded the company from Sector Perform to Outperform.
Regions Financial Corporation operates as the holding company for the Regions Bank that provides a range of commercial, retail, and mortgage banking services in the United States. The company is trading significantly below analysts' estimates. Regions has a median price target of $7.00 by 21 brokers and a high target of $8.00. The last up/downgrade activity was on Nov 11, 2010, when Jefferies initiated coverage on the company with a Hold rating.
Huntington Bancshares Incorporated operates as the holding company for The Huntington National Bank that provides commercial and consumer banking services. The company is trading significantly below analysts' estimates. Huntington has a median price target of $7.00 by 23 brokers and a high target of $10.00. The last up/downgrade activity was on Aug 9, 2011, when Compass Point upgraded the company from Neutral to Buy.
LSI Corporation designs, develops, and markets storage and networking semiconductors and storage systems worldwide. The company is trading significantly below analysts' estimates. LSI has a median price target of $8.00 by 11 brokers and a high target of $14.00. The last up/downgrade activity was on Jan 12, 2011, when Deutsche Bank downgraded the company from Buy to Hold.
The Interpublic Group of Companies, Inc., through its subsidiaries, provides advertising and marketing services worldwide. The company is trading significantly below analysts' estimates. Interpublic Group has a median price target of $13.00 by 15 brokers and a high target of $16.00. The last up/downgrade activity was on Feb 11, 2011, when Deutsche Bank upgraded the company from Hold to Buy.