RECOVERABLE CALAMITIES AND OTHER OPPORTUNITIES
When smart people do stupid things, they can lose lots of money. The same goes for smart companies. Opportunities arise if the mistakes are both correctable and recoverable. The vast majority of participants in the stock market are short-sighted. No matter how intelligent a person is, emotion controls investors’ reactions. Don’t believe it? Ask people why they invest in a particular mutual fund, and they will more than likely tell you it is because the fund is ranked as a top performer. The pressure to rank among the “best” funds causes short-sightedness, and managers get caught up selling shares on bad news. Instead of buying when companies are out of favor, many mutual funds do the opposite to “window dress” and create the appearance of holding only winning stocks. The costly mistake by managers to sell on bad news creates new opportunities for bargain hunters.
Another reason most mutual funds under-perform the market has to do with investors’ behavior. People often buy funds only after the market is hot, and has risen for some time. The massive influx of new money into successful funds causes managers to buy stocks that are no longer cheap. When the inevitable correction comes, investors often panic and liquidate their fund holdings, forcing managers to sell what may have become attractively priced stocks at or near a bottom.
TEN STOCKS FOR THE NEXT 5 YEARS, Part 2
Our list of ten stocks for the next 5 years includes several issues that were popular with mutual fund managers until last years crash occurred. When mutual fund shareholders began liquidating, fund managers were forced to sell everything, including the stocks they had the most confidence in…at any price in a down market. This issue we will focus on smaller businesses with strong recovery potential. Here are five to consider.
1. Hansen Natural (soft drinks, beverages) HANS: $36.60
Down from its 2007 high above $67, Hansen remains a high quality, conservatively financed growth stock. Currently trading at a forward P/E of 14 we believe Hansen will revisit its former highs over the next few years.
2. Skechers Inc. (Shoes) SKX: $8.02
Down more than 60% over the last year, we feel that the selling in this stock has been overdone. The business is expected to generate .33 cents in profit for 2009 and .90 cents in 2010. With analyst consensus for future growth at 15%, we view SKX as a strong recovery candidate.
3. World Fuel Services Corp (fuel services) INT: $34.39
World Fuel Services has already rebounded nicely from its 2008 lows. Still, we view this marketer of marine, aviation and land fuel products as a bargain at current prices. The company is expected to earn $3.38 per share by 2010 and should benefit from the eventual reacceleration of global economic growth.
4. Move, Inc. (real estate marketing) MOVE: $1.95
Move, Inc. operates web sites for real estate search, finance and moving. The company’s shares are depressed along with the real-estate market that they serve. Still, MOVE is expected to be profitable in ’09 and generate solid growth over the next business cycle. At current prices we see substantial upside.
5. Lincare Holdings (home respiratory services) LNCR: $21.36
Lincare is down more than 30% since its September ‘08 high. The company has a history of generating high returns on shareholder equity, strong margins and free cash flow. We see continued strong demand for the company’s services and view the current price as a good long-term entry level.
** All prices as of 4/20/09