How do we find bargains? How do we examine what might be attractive when the selling madness really abates?
One way to spot opportunities is to get out of your comfort zone and look at stocks that are down a great deal from their highs to see if we have some solid bounce candidates or at least merchandise worth kicking the tires for. It's a systematic way, it's always worked for me and I want to do it for you.
So what I have done is looked at the stocks that have been hit the most from their highs in the S&P 500, up until this morning to see if there are some stocks worth buying or passing on. It's a first cut, not a reason to buy but a reason to get your hands dirty by reading the research and seeing if there is something there.
Sure enough the stock that's down the most from its top is that Align Technologies (ALGN) , the maker of the Invisalign method of clear braces to straighten teeth.
I know this company's stock is expensive, but it is always expensive, so I find the decline intriguing. It began when the company reported what was basically a very solid quarter but then gave guidance that didn't make analysts all that happy because it wasn't the fabulous beat and raise we are so used to from the company.
The thing is, I think this time the company was being conservative. It's stock has been such an amazing performer it wouldn't shock me if the company weren't playing the UPOD card, which stands for Under Promise and Over Deliver. Why not? The company's been on a treadmill of beat and raise, and it is okay occasionally to temper expectations.
Why do I feel that's all that's happening despite the huge decline. I think it's because in the end Invisalign is the ultimate Look Your Self-ie Best product. With all of these great camera screens and with all of the rush to use the Snap (SNAP) camera and post on Instagram, I think that millennials and even younger kids know that teeth must be straightened. Every parent takes their kid to the dentist and the dentists don't have a lot of new product that help them make a good living. Invisalign is something that they sell to you.
I like the stock right here. Like many stocks, I wish there was a split here. Managements at many companies have been brainwashed by big institutions that they don't want to pay the commission dollars that come from, say a $50 stock versus a $200 stock. You have four times the commission to buy the same amount. Memo to management: if you split the stock you will get more retail investors in and they don't flit around on the corner like the hedge and mutual funds do when you report. But because the dollar amount is so high and the market so unsteady, I would buy some right here but start small and then use a wide scale. You want 200? Buy 50 here and then wait five percent to buy the next lot of 50. The worst that happens? It flies up and you have a nice trade. '
Next up is Hess (HES) , which has really been hammered here. I have to tell you that for my charitable trust I have turned decidedly anti-fossil fuel and Hess is part of that pivot. The good news here is that Elliott Partners, an extremely smart hedge fund, is agitating for change that could lead to better performance. The bad news? I think there is the possibility in the not too distant future where energy stocks get shunned by millennials who want to support renewables. Plus if Elliott fails you do have a mediocre management in there and if oil drops to the mid-fifties as I am beginning to think it is, you have a loser on your hands.
Ford's (F) third and what can I say? Ford is really the gang that couldn't shoot straight. While they are doing incredibly well in the truck business, they simply aren't producing the year over year gains that people want from a stock. Ford sells at one of the lowest price-to-earnings ratio in the entire market but who says cheap doesn't beget cheaper.
It does yield 5.75% here and it's not like we are going into a recession. But the changes in autos, autonomous driving and the like favor other auto makers, and I don't think that yield makes the stock attractive enough to where it is worth waiting for.
Arconic's (ARNC) number four and boy oh boy is this close to home. My charitable trust has a position in Arconic and we got caught being greedy. Well, we sold dome before it reported its quarter recently and I am glad we did because this company, part of the old Alcoa, really did not have a good quarter or a good outlook as it is being squeezed by commodity costs and it didn't deliver the upside I expected given all of its aerospace exposure.
That said if you didn't own it, the stock has gotten interesting because CEO Chip Blankenship is trying to get the operations running right. It is a gem, a tarnished gem but one that I think can be broken up into pieces or be sold altogether to some company that wants to be bigger in aerospace. Here's the problem. The story, which started when former CEO Klaus Kleinfeld split Alcoa into a high valued engineering company with lots of exposure to aircraft parts and cars and trucks and construction, which is now known as Arconic, and Alcoa (AA) which makes aluminum and other raw products that can be bent into something. Turns out the commodity company is doing far better than this proprietary engineering company and I feel that if it were to gun up a couple of points we would leave it. So I can't recommend if it I am itching to go simply because I do believe the weakness is not a one quarter phenomenon. You can't just own a stock for a takeover if the fundamentals are not up to snuff. I think I am willing to wait it out for a bit but I am not pounding the table on this one to Action Alerts PLUS club members so I can't do it to you.
I am not enticed by Andeavor (ANDV) , the former Tesoro, a gigantic refinery. If you want to own a refinery stock I would vastly prefer you buy Marathon Pete (MRO) , the 3% yielder that also owns a gigantic chain of very profitable gas stations. I know it's doing well as I just sat down with its terrific CEO, Gary Heminger. Marathon's not down 20% like Andeavor, but I need the higher quality company if I am going to own a stock of a company in the refining business.
Number six is Xerox (XRX) and this one is done. It's effectively been bought so move on.
Seven, hmm, Tractor Supply (TSCO) , a very good retailer that is heading into its sweet spot, the spring selling season. The stock sold off hard after a very confusing quarter, and normally I would say that it can't come back in this environment. But as a customer I can tell you this store has an awful lot of product that Amazon.com (AMZN) can't duplicate. More important there is a data point, a February 20th analyst meeting where they clarify why the quarter wasn't that bad. Call me a scale buyer.
Principal Financial Group's (PFG) eight and it is a total quandary. I simply do not understand how in heck this stock has fallen 20%. I don't want to say buy buy buy to anything in this market, but I have to tell you this is a solid financial services company that hasn't come in for sale like this since the Great Recession. With a greater than 3% yield and solid underpinnings, call me a buyer.
Nine, Cadence (CDNS) intrigues as a semiconductor equipment investment but frankly, it's been a horse and the group has already left the barn. Let me go a step further. I have watched the semiconductor equipment group get hammered and hammered again for weeks now and my favorite, Lam, is now down 12% and sells at 12 times earnings. It's a much better buy at least for a trade until we see what the heck is happening that the stock is so low.
Tenth is perhaps the most controversial of all, the Cboe Global Markets (CBOE) . Why? Beyond the fact that its been the best performer in the exchange group, it is closely aligned with the VIX, the VIX of all things, the epicenter of the damage. CBOE makes the most if the short VIX trade keeps doing well. It's doing anything but. I don't want to be near this one for now. Just too radioactive.
So what do we have here? I spot two I am interested in Align and Principal Financial Group for investments and Tractor Supply for a trade. That's not bad and it is exactly as I figured, lowered prices don't necessarily create bargains but these? Pretty much irresistible as they go down, very compelling places to be in this market's remarkable ability to roll back capitalizations as if they are child's play.