With May wiping out nearly all of 2012s gains, patient investors are now looking at an opportunity to pick up some stocks at a massive discount. Yes, there are huge macro risks on the horizon, and the Dow could quite frankly be looking at another 1000 points to the downside, should Greece exit the eurozone, or Spain be unable to cap their debt costs.
However, it's generally best to invest with a perspective of cautioned optimism, as I believe most of these companies will be around for decades, and their earnings will compound enormously over time.
Pep Boys (PBY): After its proposed $800 million deal with private equity firm Gores Group fell through, the stock has fallen 40% from its takeover price, and is cheaper than when the buyout was even proposed.
This indicates that investors have totally forgotten about the long term viability and earnings power of the business, and are instead suffering from "dead-money syndrome," where nothing can seem to get people interested after such a large decline.
After a weak first quarter, CEO Mike Odell believes demand trends have improved significantly, and the third and fourth quarter should show a return to the consistent growth of the past.
Additionally, as a result of the failed merger, Gores Group will be paying PBY a $50 million fee. While a small portion of this will be cut into by merger fees, the rest will go toward paying down some long-term debt and the pension plan.
Navidea Biopharmaceuticals (NAVB): Navidea, formerly Neoprobe, was a favorite of mine when I first started writing for Seeking Alpha. The pipeline, which is led by Lymphoseek, is extremely exciting, and the price has yet to reflect any sort of meaningful expectation for approval on the PDFUA date, September 10th, 2012.
Lymphoseek has the potential to be a $500 million annual revenue generator, and its chances for approval are very strong. NAVB's trials have been run in the context of constant communication with the FDA, and despite the lack of an SPA, it was made clear to Navidea that their trials showed everything necessary for it to be potentially approved.
From a long-term perspective, the biotech space doesn't typically offer the best investment opportunities. However, playing NAVB for a price run-up leading to the PDFUA data is a nice trade idea, considering Lymphoseek's excellent chances at approval, and the overall deep pipeline.
RIGScan, developed in order to help surgeons remove cancerous tissue, is a potential billion dollar drug, which would have a transformative effect on the company's capitalization.
The reality is that traders should be nimble in NAVB (and any other biotech, for that matter), and sell when the hype game comes in full force. With a pipeline like this and a depressed share price, I expect a price run-up to be very likely over the next few months.
Hecla Mining (HL): This silver miner has been particularly depressed recently, as litigation worries, the closing of one of its mines, and weaker precious metal prices have all combined to compress the share price.
However, even with all these factors, earnings are expected to decline to $.27 this year, giving the stock a still reasonable price to earnings multiple of 16. Add in the dividend of 2%, about $1 per share in net cash, and a very fair P/B ratio of 1.16, the stock is priced for very little long-term growth. On the contrary, analysts expect $.48 per share in 2013 EPS, producing a forward multiple of less than 9.5.
Overall, Hecla is an excellent income producing, levered investment on the price of silver.
Silver prices appear to have plenty of upside, as major currency concerns, in addition to eventual massive-scale easing should things get bad enough, will drive silver back up to its highs of $50/oz.