Low-priced stocks are more likely to see large percentage moves both up and down when compared to higher-priced, large cap stocks. If you want to hide out in the safety and security of a stock like Johnson & Johnson (JNJ) the chances of a big move up or down are limited. These types of blue chip stocks are not likely to double in a week, month or even by next year, and that is the downside of owning "safe" stocks. The upside, of course, is that you probably won't see a blue chip stock making the top percentage losers list too often. It makes sense for many investors to have solid blue chips, but adding a few more speculative stocks that have high-potential can make investing more exciting and possibly add significant gains to your portfolio.
Low-priced stocks in small capitalization companies can see exaggerated drops when disappointing news arrives, and this can (sometimes) provide a solid buying opportunity. If the reason for the stock decline is not due to company-specific issues or if it is just a shorter-term issue, this can mean that there is strong rebound potential. I have been watching a number of stocks that fit this criteria and sorted through the companies that for now, remain fundamentally sound. The stocks below have seen large declines, but also show signs of either being close to a bottom or may have bottomed-out already. Here are 4 stocks that investors should consider as having high potential for a rebound:
Fortress Investment Group, LLC (FIG) shares are trading close to half of the 52-week high, and a couple of factors could be indicating that the stock is undervalued and poised to rebound. Since Fortress is a global investment management firm, its shares often rise and fall with the markets. The company has about $43.7 billion in assets under management, as of December 31, 2011. Fortress specializes in private equity, credit, fixed income, and other investment opportunities. When markets see volatility and days or a week when the indexes trade sharply lower, the value of these holdings can also drop, but then rebound with the markets. An insider at Fortress seems to see major value in the stock: A director named David Barry just recently purchased 400,000 shares at $3.48, which is an investment valued at nearly $1.4 million. A transaction of this size could be a sign that he believes the stock is not likely to drop much lower. If the markets can continue to trend higher in 2012, this stock is poised to rebound. In the meanwhile, investors are paid a dividend that yields about 5.6%, while waiting for a rebound in the share price.
Here are some key points for FIG:
Current share price: $3.58
The 52 week range is $2.67 to $6.37
Earnings estimates for 2012: 49 cents per share
Earnings estimates for 2013: 63 cents per share
Annual dividend: 20 cents per share which yields 5.6%
Golden Star Resources, Ltd. (GSS) shares are currently scraping the bottom, near 52-week lows. Most gold mining stocks have seen sharp declines and have dropped much more than gold has in what appears to be an overreaction. With the negative market bias against mining stocks, it's no surprise to see this stock lower. The currently low valuation seems to be a buying opportunity, as the company itself is making progress and is expected to post growing profits for the next couple of years. This company has two gold mines in Ghana as well as exploration projects in Sierra Leone, Niger, and Brazil. At about $1.50, the stock appears to have more upside than downside. The book value is $1.70 per share, and the company has a solid balance sheet with about $111 million in cash and around $139 million in debt, which is reasonable for a company with nearly $470 million in annual revenues. This appears to be a great time to accumulate this undervalued gold stock before the next rally in gold.
Here are some key points for GSS:
Current share price: $1.55
The 52 week range is $1.50 to $3.28
Earnings estimates for 2012: 20 cents per share
Earnings estimates for 2013: 25 cents per share
Annual dividend: none
Chimera Investment Corporation (CIM) shares were on a roller coaster ride in 2011. The whole mortgage REIT sector was impacted by a variety of factors, including the debt issues in Europe, general market weakness, an SEC inquiry into the status and leverage used by mortgage REIT companies. The stock started to trend higher into 2012, but then another setback appeared when Chimera announced that the company will switch auditors. However, while a change of auditor and the filing delays that can come with it might be a warning sign, it is often benign. The stock has shown signs of stability once more, and after trading recently for about $3.05 per share, the stock is offering what might be an ideal buying opportunity around $2.78 per share. The stock is trading at a 15% discount to book value, which is $3.27 per share. Chimera shares pay a very compelling dividend of 11 cents per quarter, and this offers investors a yield of 15.8%. If investors gain increased confidence in the audits going forward, the stock has room to move higher.
Here are some key points for CIM:
Current share price: $2.78
The 52 week range is $2.38 to $4.07
Earnings estimates for 2012: 47 cents per share
Earnings estimates for 2013: 45 cents per share
Annual dividend: 44 cents per share which yields 15.8%
Gafisa SA (GFA) is a higher-risk stock, but it does have significant upside potential. This company is a leading homebuilder in Brazil and it offers everything from high-end to smaller, basic homes to fit entry level budgets. This stock has completely fallen out of favor over the past couple of years and now sits just a couple pennies above the 52 week high. A number of investors believe this company has made some management errors. Gafisa has posted losses recently, which makes the debt level a potential issue. It has about $530 million in cash on the balance sheet, and around $2 billion in debt. Investing in a leveraged company is risky enough when it is profitable, but when it is losing money, it could eventually be a recipe for big losses. Gafisa operates in a country that has a relatively strong economy, and that growth is expected to last for years as a growing number of Brazilians continues to see their incomes rise. Based on the strong fundamentals in Brazil, Gafisa should have the resources to flourish, but that is only if management controls costs and executes more successfully. Because of these issues, it only makes sense to consider a small position and average into the stock over time. More conservative investors might want to wait for improved financial results before investing, but a turnaround could take these shares much higher. The stock could be close to a bottom, but I would not be surprised to see it drop below $4, before making a stand for stability.
Here are some key points for GFA:
Current share price: $4.13
The 52 week range is $4.11 to $13.05
Earnings estimates for 2012: 36 cents per share
Earnings estimates for 2013: 57 cents per share
Annual dividend: 23 cents per share which yields 5.5%
Disclaimer: Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.