Get Ready for “Stupid Cheap” Stock Prices
Companies / Investing 2014 Oct 25, 2014 - 12:18 PM GMTBy: Money_Morning
Michael A. Robinson: “This is huge. It’s ka-boom!”
That was my then-boss calling me from Wall Street. At the time, I was an analyst in the Financial District in San Francisco.
It was Oct. 19, 1987 – Black Monday – and the stock market had just crashed.
And my boss sounded like he was ready to sell everything.
I had other ideas.
After all, if Macy’s holds a 25% off sale, shoppers rush down in droves. So why do so many investors panic when the market corrects.
By doing so, they miss out on great bargains.
We’re not doing that.
We’re going shopping…
Filling the Shopping Bag
While my boss was freaking out, I was getting excited about all the money I would soon be making. And history proved me right.
Had you simply invested $2,000 in a Dow Jones Industrial Average index fund the day after the 1987 crash and held it through this week, you’d now have $17,800 – a 790% jump. And that includes the dot-com crash of 2000-’02 and the Great Recession of 2007-’09.
That’s why you should look at corrections as a chance to add to your portfolio’s long-term gains. And yet, sell-offs present us with a challenge as well. If we buy on the dips too early, we run the risk of getting stopped out to protect capital.
Now that the worst of the recent volatility appears over, I want to share four investments on my Tech Stock Shopping List. All four are proven winners with bright futures.
To avoid that, I’ve developed a system to determine if a stock has fallen so far that it’s become available at what I call a “Stupid Cheap Price.”
You could look at financial data to find winners you think should rebound based on cash flow, earnings and operating margins. However, that can consume hours of your time.
There’s a simpler method. All you need to do is look at the stock’s 50-day moving average, and then take a discount from that to arrive at an attractive price – the Stupid Cheap Price.
This is a price that over the past 10 weeks investment pros think should be the minimum price for this stock.
I’ve used this process over many years of investing to great effect. And I generally like to get a discount of at least 10% from the 50-day line.
With that in mind, I want to share with you four stupid cheap stocks that should be on every tech investor’s shopping list.
Stupid Cheap Tech Stock No. 1: Bitauto Holdings Ltd. (NYSE: BITA)
Concern about China‘s slowing growth was a major factor in the recent sell-off. The World Bank now estimates that the Chinese economy will grow at 6.9% a year, down from earlier forecasts of 7.1%.
As a group, Chinese e-commerce stocks got hammered, with Bitauto coming under severe pressure. From its recent closing high of $96.14 reached on Aug. 26 to its recent low of $63.09 on Oct. 13, the stock declined 34.3%. (We picked up the stock for around $31 back in April.)
The leader in China’s automotive e-commerce sector, Bitauto sells online advertising and provides reviews and pricing data for consumers. It also serves as an online showroom for both new- and used-car dealers.
It has operating returns of more than 21% and earns 23% on stockholders equity. The most recent quarterly earnings were up 107.6%. With a market cap of $3.29 billion, Bitauto trades at about $75.
Even though Bitauto quickly recovered much of its value, the stock remains a bargain. Stupid Cheap Price: $70.90.
Stupid Cheap Tech Stock No. 2: U.S. Silica Holdings Inc. (NYSE: SLCA)
Energy stocks have come under great pressure because global prices for petroleum products have dropped sharply since the end of the summer. And that’s had a dramatic impact on shares of U.S. Silica, which I introduced to you back in February, when it was trading around $29.50.
The company provides high-grade silica sand the fracking industry relies on to help extract natural gas and oil hidden deep in shale deposits.
And in a positive sign for folks who already hold U.S. Silica, Forbes recently recognized the Frederick, Maryland-based company as the America’s Best Small Company. More investors are going to start noticing our find soon, which should fill our sails.
Investors recently dumped shares in a panic without realizing a compelling part of the story – it’s not all about energy. U.S. Silica’s specialty division, which accounts for 40% of sales, supplies such industries as housing, water filtration and performance chemicals.
With a market cap of roughly $2.5 billion, the stock trades at about $47.50. U.S. Silica has operating profits of 19%, earns 23% on stockholders equity and recently increased quarterly earnings by 42%.
From its recent closing high of $71.91 on Sept 2 to its low of $40.33 on Oct. 14, the stock lost 44% of its value. It quickly rebounded by some 17% in just three sessions, but it’s still well below my… Stupid Cheap Price: $55.30.
Stupid Cheap Tech Stock No. 3: FleetCor Technologies Inc. (NYSE: FLT)
FleetCor also got caught up in the energy sector’s correction – good news for bargain hunters like us. While the company has substantial exposure to oil and gas firms, this big-cap leader is hardly an energy play.
The company, which I brought to you in May 2013 when it was trading around $75, provides payment processing services for businesses, commercial fleets, major oil companies, petroleum marketers and government agencies.
And the advent of electronic transactions has been a boon for FleetCor. Last year, it conducted more than 327 million transactions, or one for nearly every man woman and child in the U.S.
With an $11 billion market cap, the stock trades at roughly $133 a share. It has operating margins of more than 47%, earns 24.5% on stockholders equity and recently grew quarterly earnings by 217%.
From its recent closing high of $148.11 on Aug. 22 to its recent low of $123.44 on Oct. 13, FleetCor fell by 20%. It has rebounded back well above our Stupid Cheap Price, but it’s a stock you always should be watching. Stupid Cheap Price: $125.95.
Stupid Cheap Tech Stock No. 4: Ambarella Inc. (Nasdaq: AMBA)
A maker of video processing chips, Ambarella is a big hit in the rapidly evolving world of wearable technology. And it’s probably best known for supplying the the semiconductors used in the popular Hero action cameras made by GoPro Inc. (Nasdaq: GPRO).
Ambarella, which we first started looking at in August 2013, also targets such growth markets as connected cars, video surveillance and commercial broadcast of ultra-high-definition television (UHDTV).
With a market cap of $1.4 billon, the stock trades at roughly $38.50 a share. It has 17.5% operating margins and a 19% return on equity and recently grew quarterly earnings by nearly 49%.
From its recent closing high of $44.47 on Sept. 29 to its closing low of $35.24 on Oct. 13, Ambarella fell nearly 21%. Stupid Cheap Price: $33.
Now then, three of these four stocks are already trading above their Stupid Cheap Prices after making sharp rebounds just days after their big drops.
So, here’s how to play it so you don’t miss out. Use my Cowboy Split strategy, where you buy a portion at market and then put in a lowball order for more at the Stupid Cheap Price.
In other words, the market’s recent sell-off has turned out to be good news.
It’s given us a chance to buy at least four winning tech stocks at huge discounts and also to put in reservations for future “sale” prices.
These are both proven, effective ways to use the market’s volatility to boost your long-term gains – and keep you on the road to wealth.
Source : http://strategictechinvestor.com/2014/10/get-ready-stupid-cheap-stock-prices/
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