After wiring yesterday's column about concerns in the market, I decided to look for stocks that are outside that major indices and are down for the year. I wanted to look through this pile of stocks and try to use the eyes of someone my son's age instead of my own curmudgeonly peepers.
Although I believe that the bulk of one's investing should always be of the safe and cheap variety, the younger among us can afford to take a few shots down the field from time to time. The business reasoning and logic behind the decision need to be sound, but a 25-year-old can take a little extra risk for a long shot that makes business sense.
Although not that many stocks are down as much as the market is up so far this year, I did find a few ideas that make some sense. These stocks are probably going to be very volatile, but over a few years they could pay off in several multiples of the current share prices.
The resulting list has two characteristics in common with the broader market. First, the pool is shrinking. Fewer than 10% of the stocks in the database were down more than 17% so far this year. In addition, the list is dominated by companies that dig stuff out of the ground or turn raw materials into metal. There is a conundrum in the weakness of raw materials and strength of the end users and sellers, but we will save that for another discussion.
If I were a younger guy devoted to the rigid application of deep-value principles, I would have to be a buyer of OraSure Technologies (OSUR). At 2.2x tangible book value, the stock is not a candidate for my portfolio, but I will suggest strongly that my kids buy a few shares. The company makes in-home test kits, and last year it received FDA approval for the first take-home HIV test. In 2011, it received approval for a hepatitis C test, and the company offers drug-testing kits as well.
The company has spent an enormous amount of money to develop and roll out these products, so profits have been elusive, but the potential here is enormous. The products are available in most major drugstores, and I expect to see them more widely used in the near future. Sales of the HIV products are starting to pick up, and this could be a blockbuster product. It could also lead to some larger drug or medical supply company deciding to just buy the whole company rather than develop a competitive product. This stock is a solid long shot to produce returns in multiples rather than percentages of the current quotation.
Also, if I was a younger, more aggressive type, I would buy a bit of McClatchy (MNI) as well. Although the death of the newspaper is a widely heralded event, there is still a market for newspapers in most cities and towns across the U.S. But in many cities and towns, McClatchy's major dailies are the only game in town, and the company is embracing the new and moving content online. The Internet division also has stakes in CareerBuilder.com and Classified Ventures that could pay off large with solid returns in the future. Circulation is picking up for the company's papers, and the rollout of the online product is progressing better than originally expected. The newspapers that survive will be money machines in a stronger economy, and I expect McClatchy to survive.
The mining and materials companies definitely belong in a younger investor's portfolio as well. Unless the economy goes into a permanent global recession, stocks such as Alpha Natural Resources (ANR), Arcelor Mittal (MT), and Cliffs Natural Resources (CLF) will all sell for several times the current price sometime in the next decade. While I am often a cynical skeptic in the short and intermediate term, I am long-term bullish on the U.S. and global economies, and I believe these stocks have the potential for outstanding returns to patient investors.
Most of Wall Street likes to focus on what is working right now. I have a much greater interest in what's not working right now but should work very well in the future. If you are patient, there is much more money to be made by buying the ignored and unloved than by chasing the popular. Even younger, more aggressive types like my kids should adopt the same approach in their long-term portfolios