“Oh what happened now? Did the rubble burn down?” - Ned Flanders
The stock market is not in a happy place. Even though the major indexes are down a mere 20% or so, many individual stocks have been absolutely taken to the woodshed. Despite the recent rally in the financials, many stocks are still down stomach turning amounts. Some stocks are down 50%, 70%, 90% or more from their 52 week highs.
The reason? Take your pick.
Subprime losses, high oil and gas prices, commodity prices, food prices, inflation, deflation, stagflation, unemployment, crumbling housing prices, foreclosures, the weakening US economy, the sinking dollar,exhausted/pessimistic/cash strapped consumers…
Is the rout over? Or is there more pain ahead?
This past week, I remembered another time not too long ago that felt similar. The year was 2003. Priceline was trading for less than the cash on its balance sheet, and the company wasn’t even burning cash. Apple was trading for a few dollars above cash and no one saw anything special about this company with 4% of the PC market and a few fringe products. A funny sounding company called Research in Motion slipped below $2 per share. There are more, but you probably get the picture.
Stocks that had been absolutely beaten to the ground and left for dead, shockingly rose from the dead. Companies who had to issue embarrassing reverse split to stay listed, later issued splits to reverse the previous reverse split. Many individual stocks posted obnoxious 1,000% + gains in the course of a few years. The Dow even went on to notch a new all time high.
So here we are.
The Idea: We probably aren’t out of the woods yet. And this isn’t 2003. But I am choosing to be optimistic.
This is either an opportunity, the brink of an opportunity, or a good time to close my eyes and take a shot.
I selected a basket of 8 stocks down 50% or more from their 52 week highs. I’m going to buy them and track the performance of the portfolio. My intention is to hold them for a period of 3 to 5 years through thick and thin. Likely some will work out and some will fall, but on the balance I’m hoping for some shocking out performance.
The worst of the lot is down 98% from its 52 week high. The best of the lot is down 54%. In subsequent posts, I’ll explore some of the thought process behind the picks, but for now here’s the 8 Stock Portfolio:
- Brunswick (BC)
- Chico’s (CHS)
- RH Donnelly (RHD)
- Ruby Tuesdays (RT)
- Select Comfort (SCSS)
- Titanium Metals (TIE)
- VMWare (VMW)
- Whole Foods Market (WFMI)
Can these stocks go lower?
Sure. The rubble can burn down.