Whenever the broad market takes hits due to macroeconomic issues, inevitably, strong companies are dragged down through no fault of their own. Some of them will be dragged down even if they perform better in a down market. Others may not perform as well in a down market, but the rate at which they go on sale is not proportionate to the potential income loss. Here are 4 stocks that I feel have been unfairly punished due to macroeconomic issues over the past 2 months.
Apollo Investment Corporation (NASDAQ:AINV)
- Yield: 15.05%
- Share Price (9/28): 7.98
- 52 Week Range: 7.17 – 12.46
- Share Price down 17.73% since 7/22
Not much could be better for AINV than a recession. As more companies fall on temporary hard times, it allows AINV to be more selective and diverse in the companies it chooses to invest in or make loans to. A recession can be great news for a company like AINV, so there is no reason it should be trading at this much of a discount.
Recent measures taken by President Obama and Ben Bernanke also have to be taken into account. These measures are designed to strengthen the small business sector, specifically the $450 billion jobs plan and “Operation Twist.” Business development companies such as AINV can take great advantage of these opportunities, as their lending and investing targets these same companies.
From a volume standpoint, AINV looks attractive as well. AINV has recently traded at an unusually high volume of about 3 million shares per day, on average. Whenever AINV has averaged over 3 million shares traded in a 10-day period, it has returned, on average, 86.79% return over the next 180 trading days. The last time AINV averaged over 3 million shares traded in a 10 day period was 9/14 to 9/22.
- Yield: 6.02%
- Share Price (9/29): 28.84
- 52 Week Range: 27.20 – 31.94
- Share Price down 4.88% since 7/22
T continues to fall in share price, despite an incredible 6% yield that continues to grow on solid, consistent earnings year after year. T is also a solid business even without T-Mobile; even so, it appears T considers this acquisition important to its growth, as it is working on selling assets and spectrum in order to ensure the $39 billion deal goes through.
It may take a few more months, but I believe T will eventually get T-Mobile. T is willing to go to great lengths, despite the Department of Justice, seven other states, and Sprint going against it. It appears even Verizon (NYSE:VZ) wants T to get T-Mobile. This says to me that acquiring T-Mobile’s spectrum will result in a much stronger company, and that VZ may have similar acquisition plans up its sleeve.
Philip Morris International (NYSE:PM)
- Yield: 4.86%
- Share Price (9/28):64.01
- 52 Week Range: 55.10 – 72.74
- Share Price down 10.17% since 7/22
It was only a little over 2 weeks ago that I talked about PM and how it is a great dividend buy. One of my main focuses was on how PM is being ignored by the shorts with just 1.69% short interest. Surprisingly, short interest has dropped 32% to 1.15%. That wasn’t the only great change over the past two weeks: PM also boosted its dividend by a hefty 20% from $0.64 to $0.77.
Despite PM’s strength, I am coming across articles that discuss how sales are flat in Europe and that you should ignore PM. I think this is insanity. These articles seem to think 15% of the product users in Europe will suddenly quit smoking. Sales could slow in Europe, but outside of Europe, net revenue is growing. In the 3 months ending June 2011, net revenue grew by 31% in Asia, and 15% in Latin America and Canada over the previous year. Sales growth aside, I like PM even more as the stable, solid company that it is. This stock may not double for a long time, but I believe it will continue to return dividend growth year after year.
- Yield: 3.97%
- Share Price (9/28):41.35
- 52 Week Range: 40.21 – 57.00
- Share Price down 23.92% since 7/22
DD is in an interesting position. It is economically sensitive to the overall economy, so if we are indeed set for another recession, DD could take a significant hit. For this reason I like DD only if you plan on holding for over 2 years. On the other hand, if we are near a recovery, then DD will trade sideways while returning a constant 4% until eventually the share price rebounds to $50 to $55.
Right now I believe photovoltaics to be an important, and undervalued, part of DD’s future. While recently solar companies are struggling, DD expects module builds to be up nearly 15% this year. DD has had production outpace demand so far, but they also expect installations to be up significantly, helping to work off inventories and allow cell and module production to pick up again. What I don’t think they expected was the other solar companies' recent struggles, or even bankruptcy, such as Solyndra. The solar market should begin to narrow, helping DD’s photovoltaics segment grow even more.
From a volume standpoint, DD is looking increasingly attractive. DD recently traded at an unusually high volume of about 11 million shares per day, on average. Whenever DD has averaged over 11 million shares traded in a 10-day period, it has returned, on average, 17.19% over the next 180 trading days. The last time DD averaged over 11 million shares traded in a 10-day period was 9/22 to 9/28.
In summary, during broad market turmoil, some companies always take unfair hits to their share price. Identifying these companies can help you get through the bear market and be well-positioned to enter the next bull market.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.