Making Money on the Down Slide

 | Jun 25, 2013 | 2:00 PM EDT
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The late investor Shelby Davis famously noted that money is made when stock prices are going down; you just don't know it at the time.

Shelby's observation is one that has been tested time and time again and has worked without fail. It's not market timing but rather simple logic: When you pay a lower price for the same asset, the odds of capital appreciation are greatly enhanced.

The stock market has been on a violent path downward for the past few days and it has my juices flowing again. With the Dow Jones Industrial Average still above 14,500, it's far cry from 2008 when it sat below 10,000. I don't see such a scenario happening anytime soon but if in the next few weeks we find the Dow sitting closer to 13,000, my excitement for stocks will grow a little more. Enthusiasm for equities is directly proportional to the rate of decline in stock prices.  

A few days ago, I noted that the 52-week low list of stocks consisted of fewer than 50 securities. Today, that number is over 200. Examining a growing list of new price lows is one way I like to keep an eye out for any great opportunities that may have fallen through the cracks.

Nothing has really caught my eye yet but if the list grows, my chances are better. There are high caliber names, however, that are now on the list, including fertilizer giant Agrium (AGU) now trading at $84 a share, or 9 times earnings. Shares yield 2.3% and are down from a 52-week high of $115.

When the market is just coming off a prolonged rally, you won't find many names on a new low list until you get a prolonged decline. So, another favorite list I like to observe is the largest percent decliners in a given day or week. Insurance company HCI Group (HCI), formerly known as Homeowner's Choice is a name that has been on a tear the past couple years up from $6 to over $36. On Monday, shares fell nearly 8% and now trade for $29. Perhaps this high quality business will continue to face such downward pressure and provide another excellent entry point around $20 or lower.

Commodities are not hot at the moment and as a result Canada's Teck Resources (TCK) dropped 7% yesterday and trading at a new 52-week low of $20, down from a 52-week high of $38. During the recession, Teck shares dropped to less than $5 and rallied to above $60. Shares yield 4% and less than 8 times forward earnings.  

Now is hardly the time to get complacent or lose interest in stocks. Starting last week, Mr. Market began a Fed-induced liquidation sale. Time will tell how long this "sale" will last but the longer it does, the more excited you should be.

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we like this chart here, it appears ready to move higher. BOUGHT BZUN OCT 35 CALL AT 3.40
Large-cap, high-quality McKesson (MCK) is too cheap now, at $147.51 or so. The stock hit $243.60 more than 2.5...



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