I remember reading an article many years ago where investing legend Walter Schloss sheepishly said that he always kept a few really aggressive positions in his account just to keep himself interested. I confess, I suffer from the same trait and have a small portion of my account devoted to long-shot stocks. These do not usually fit the usual risk profile that mark the bulk of my investments, but have what I call "hero or zero" potential. If they work, I stand to make a sizeable profit; if they don't, I will lose a little money. Over the years this has worked well for me as more have worked than have not. My son has come to embrace this approach almost exclusively and he has been shooting the lights out with long-shot stock picks.
With that in mind, I sat down with my list of falling knives to see if there were any decent long-shot selections worth purchasing. The first is one I am down on in a big way so far. National Bank of Greece (NBG) shares have dropped 65% in the past year and about 40% since I originally bought into the troubled bank. I never add to my long shots but I f I did not own it, I would buy a few shares at this price.
I have no clue what will eventually happen in Greece. I do not think anyone else does either, but here is what I do suspect about NBG. If the nation survives, so does the bank. Eurobank shareholders have accepted NBG's buyout offer and this will be the largest bank in the Mediterranean nation. Although it is not going to be a turmoil-free process, I think the government will eventually get a better handle on the financial problems generated by the credit crisis and recession and things will slowly improve. Any good news about the financial status of Greece could send the banks' shares higher in a hurry. The dilutive capital raise appears priced in at this level and the shares are basically an undated call option of the whole nation at this point. Over the next five to 10 years, I expect to make several dollars -- or lose $1 and change.
Swisher Hygiene (SWSH) is a stock where management has not done much right for some time. The stock has come close to boing delisted by Nasdaq and had to file several years' worth of restated financial statements. It has an interim CEO and CFO. The company has made more than 60 acquisitions over the past few years and choked on the integration process. In 2011 alone, it completed 50 acquisitions. This is a rollup gone amok according to the many short sellers who have profited from the steep decline. The stock is down more than 50% in the past year and almost 80% from the price where the reverse merger was completed to create a public company in 2010.
On the plus side, this is a basic business that sells hygiene and cleaning products to small and mid-sized businesses. The company is streamlining operations and consolidating the reporting processes for the different divisions, putting its financial reporting on track and on schedule. It has cut $10 million in costs so far and plans to slash an additional $10 million in 2013. It sold its waste-collection division and used the proceeds to reduce debt.
Buying the stock is also a bet on Wayne Huizinga. The serial entrepreneur owns 25 million shares and recently added the general counsel of his holding company to Swisher's board to provide additional oversight. His stake is worth almost $100 million less than it was at its peak, and I suspect the billionaire is interested in regaining some of his capital. The stock may go lower first, but if the company survives, I believe the stock will appreciate several multiples beyond the current $1.38 price.
Long shots are not for everybody. Even those of us who occasionally like to take an aggressive long shot should limit them to a very small percentage of overall holdings. Younger investors, like my 24-year-old son, can devote more time and effort to these stocks, but for those of us of a certain age, most of our attention should remain on safe and cheap investing. Having said that, long shots that work can add to long-term returns.