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.
Doug Kass says "Stocks are now more undervalued than at the generational bottom back in 2009." The key for Kass: Growth is slowing, not stopping. He also thinks banks are about to have a La Dolce Vita moment in which they get their act together. The final ingredient, he says, is falling commodity prices - especially oil. 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. The following are the seven worst performing DOW stocks year to date: Bank of America Corporation (NYSE:BAC), Hewlett-Packard Company (NYSE:HPQ), Alcoa, Inc. (NYSE:AA), JPMorgan Chase & Co. (NYSE:JPM), Cisco Systems, Inc. (NASDAQ:CSCO), Disney Co. (NYSE:DIS) and Caterpillar Inc. (NYSE:CAT).
I believe we are nearing the end of the correction, and it’s time to start nibbling at the amazing buying opportunities created. 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.
Current Performance Statistics
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Bank of America Corporation, a financial holding company, provides banking and nonbanking financial services and products to individuals, small- and middle-market businesses, large corporations, and governments in the United States and internationally. The company is trading significantly below analyst estimates. Bank of America has a median price target of $10 by 25 brokers and a high target of $16. The last up/downgrade activity was on May 4, 2011, when UBS initiated coverage on the company with a Neutral rating.
Hewlett-Packard Company offers various products, technologies, software, solutions, and services to individual consumers and small- and medium-sized businesses, as well as to the government, health, and education sectors worldwide. The company is trading significantly below analyst estimates. Bank of America has a median price target of $30 by 21 brokers and a high target of $54. The last up/downgrade activity was on Aug 19, 2011, when Robert W. Baird downgraded the company from Outperform to Neutral.
Alcoa, Inc. engages in the production and management of aluminum, fabricated aluminum, and alumina. The company operates in four segments: Alumina, Primary Metals, Flat-Rolled Products, and Engineered Products and Solutions. The company is trading below analysts' estimates. Alcoa has a median price target of $16 by 13 brokers and a high target of $28.10. The last up/downgrade activity was on Aug 12, 2011, when BMO Capital Markets upgraded the company from Underperform to Market Perform.
JPMorgan Chase & Co., a financial holding company, provides various financial services worldwide. The company is trading significantly below analysts' estimates. JPMorgan has a median price target of $50 by 31 brokers and a high target of $60. The last up/downgrade activity was on May 20, 2011, when Stifel Nicolaus initiated coverage on the company with a Hold rating.
Cisco designs, manufactures and sells IP-based networking and other products related to the communications and information technology industry worldwide. The company is trading below analysts' estimates. CSCO has a median price target of $18 by 33 brokers and a high target of $25. The last up/downgrade activity was on Sep 9, 2011, when RBC Capital Markets upgraded the company from Underperform to Sector Perform.
The Walt Disney Company, together with its subsidiaries, operates as an entertainment company worldwide. The company is trading significantly below analysts' estimates. Walt Disney has a median price target of $43 by 23 brokers and a high target of $50. The last up/downgrade activity was on Aug 10, 2011, when Wunderlich downgraded the company from Buy to Hold.
Caterpillar manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives worldwide. The company is trading below analysts’ estimates. Caterpillar has a median price target of $113 by 16 brokers and a high target of $139. The last up/downgrade activity was on Jun 16, 2010, when Jefferies initiated coverage on the company with a Buy rating.