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Stock Ideas Investors Daily Edge Take Advantage of Historically Low Stock Prices
Stock Ideas Investors Daily Edge Take Advantage of Historically Low Stock Prices 
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| Well, maybe not. Back to this weekend. The “thing” that’s missing in the reporting of the recent correction is a psychological perspective. You see, the 10-percent correction took the SPX into the red for the year. | |
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| Take Advantage of Historically Low Stock Prices |
| Thursday, 04 December 2008 | ||||||
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Joe, what advice are you giving subscribers/clients to weather the present storm? Back in January of 2008, when we were convinced that a terrible bear market was about to ensue, we tried to get our subscribers to sell and get out of the market. Now that we are in a bear market, we believe it's best to wait for real bargains and low P/E ratios based on lower earnings, which will come as a recession and stagflation unfolds. As of the last three to four weeks, we have been saying "buy" because many quality stocks are at once-in-a-lifetime prices. While we believe the market has bottomed, we still only recommend being 50% invested. Is your focus on safety, profits or both, and why? My prime focus is preservation of capital. You can always make profits by trading, but if you lose your capital, you're out of the game. Nobody wants to be out of the game. I have had friends say, "You haven't lost anything until you sell," which is the biggest fallacy in the world. When your Research In Motion (Nasdaq:RIMM) stock goes from $120 to $40 in three months, you have lost lots of money... and if you were on margin, you were wiped out. That's why men jumped out of buildings in the 1930s, because they couldn't face their wife and kids after they had lost it all. My secondary focus is taking profits. For the last 11 months we have been continually telling subscribers that we would be selling any high P/E, low-yielding stocks. We encourage taking profits off the table because we know that if you don't take them, they have a way of disappearing. We expect our stock picks to move 20% within three months, and we encourage a disciplined approach: Force yourself to sell some stock at a 20% profit, some at a 30% profit, some at a 40% profit, etc. If one of our recommended stocks immediately doubles, we recommend selling 50% of the position and putting a stop loss order for the balance of the position 10% below the earlier sale price What do you think it will take to inject confidence into the markets? Absurdly low prices and high yields make for buyers and sustained buying makes for confidence in the markets. We have reached those levels of prices and yields, and we believe the buying will continue. In addition, though, the markets need to be assured that corporations and individuals can access the normal credit they require, so they can conduct business, buy homes, refinance their commercial real estate properties and buy on credit. Otherwise, many companies and individuals can easily go bankrupt, or lose their properties. Investors are hesitant to buy even high-yielding stocks if they believe those yields could vanish as this recession unfolds and dividends are cut to conserve cash. Credit availability and confidence that the recession won't last more than another year or so are two of the most important factors that will help restore confidence in the markets. Would you have voted for or against the last "rescue" bill, and why? I would have voted for the last "rescue" bill because it created the perception that something was being done to prevent a worldwide meltdown in the markets. The country was in a panic mode and credit markets were locking up. This helped boost investor confidence and the credit markets that something was being done. What would be your fix for the financial crisis, and is a fix in this sector necessary to boost the markets? One of the prime reasons for all the carnage in the banks and financial stocks is because of their investment exposure in the sub-prime loan market and in mortgage-backed securities, which everyone believed would be worthless. One cure for the problem would be to make it mandatory that any and all current adjustable rate mortgages could be modified, at the option of the borrower as follows: convert the loan to a three-year interest-only loan, with the option to refinance into a 40-year fixed-rate mortgage at 4% interest at the end of the three years. And make all the loans assumable... period. Also, place a one-year moratorium on any foreclosures. The banking industry and the government regulators allowed the sub-prime mess to occur, and so they should be responsible for fixing it. The American taxpayer, most of all, deserves a bailout. This would be a low-cost fix for the housing markets as well as for borrowers facing foreclosure because of large, unaffordable mortgage payments. There will be a cost to the lenders, but they can afford it with all the bailout money they are receiving. Then, if the government needs to help, so be it. The above solution would have the following effect: all of the houses facing foreclosure and currently dragging down the real estate market wouldn't be in foreclosure. If desired, these properties could now be easily sold at higher prices because of the attractive assumable financing attached. What three stocks would you buy today? I would buy the following three stocks: Google (Nasdaq:GOOG) - closed Monday, Dec. 1, 2008 at $265.99. I would be a buyer here but would structure any purchases as follows: buy one-third at any price between $260 to $280, one-third at $210, and one-third at $150. So, if the market goes up, you profit. If it goes down further, you get really great prices on Google, the premier search engine is expected to earn $19 per share in 2008 and $22 per share in 2009. Cel-Sci (AMEX:CVM) - closed Monday, Dec. 1, 2008 at $0.28. This company has a compound, Multikine, for the treatment of head and neck cancer and has been approved for Phase 3 trials. If the results of the third-phase trials are as good as the second phase, this could easily be a $20 to $30 stock. I bought a position last week with a partner at prices between $0.22 and $0.27. ReneSola (NYSE:SOL) - closed Monday, Dec. 1, 2008 at $2.72. This company is a leading manufacturer of solar wafers and sold for $28 per share back in May of this year. It is currently priced at a P/E ratio of about 3. Even though the solar industry is expected to retract in 2009 and earnings should decline, we think this is a bargain price. How does your advisory service help its subscribers/clients get through times like these? We help our subscribers get through times like these by showing them how to protect their assets; helping them sell their high P/E, low-yielding stocks; and spotlighting real value stocks for purchase at these incredibly low prices. One big key in the stock selection process is whether insiders are buying their own stock. If they are, it's a very positive sign. We also help our subscribers by giving them ways to identify when stocks, or the markets are cheap, or when they are overpriced. Many prestigious brokerage houses have a hard time downgrading stocks. We don't have that problem. If you had an average investor standing in front of you, what would you say to him/her to ease concerns and raise confidence in the economy and markets? If I had an average investor standing in front of me, I don't think I could say anything to him to ease concerns about the economy. I would tell him that I think it's going to get worse next year and possibly for some time to come. The markets seem to be doing OK. We believe that a major bottom occurred in the last two weeks as well as selling climaxes and bottoms in individual stocks. We don't see stocks going much lower. Stock prices are in many cases at Depression-scenario levels. So, we expect stock prices to move up amid volatility and for trading opportunities to abound. For an average investor to be buying here at these historically low prices is a great opportunity. If his stocks decline, he should be buying more. To be able to start dollar cost averaging at these prices is a real advantage. The only way we see the market going lower would be if sometime in the future - after we have had a protracted move upward - corporate earnings disappear, or come in way below estimates across the board with no immediate outlook for a recovery. Then, we could see an even larger sell-off. But for now, it's too early. Do you own GOOG, CVM, or SOL? What do you think of Joe Cotton's advice? I'd love to hear from you. Tell me what you think. Write me at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
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