When the Market Gives You a Gift, Just Accept It

It sucks when stocks you bought cheap dive even further. At first you get mad. Then you realize what a great chance you have to buy more at even better prices. Some of the greatest gains come from averaging down on stocks you loved at much higher price points. An additional side benefit is that irrationally cheap stocks often bounce back very quickly. Here is an example of a stock that got punished last fall and has already recovered brilliantly. Griffon Corp. looked good to me last October at $14.95 per share, down 45% from its all-time high of $27.20. Oops. By Dec. 24, 2018, GFF had sunk to south of $10. At that price, it was offered for its lowest P/E since the dark days of 2008 while yielding 2.9%, its best payout ever. As it declined, I continued bulking up my positions, turning GFF into a major holding from a small one. That final sickening decline proved to be a tremendous gift. By April 7, 2019, GFF had more than doubled off the low, to $19.48 -- plus, it had paid a quarterly dividend. The dog that initially caused me so much pain has morphed into a major winner. What stock has the same look today that GFF did last December? Take a look at Realogy Holdings Corp. . As of Apr. 7, 2019, the owner of Century 21 Real Estate, Better Homes and Gardens Real Estate and Coldwell Banker Real Estate was down from a 2018 peak of $28.10 to just $12.21. EPS are expected to rebound nicely in 2019. The well-covered dividend has never been higher. RLGY's P/E is the lowest ever, excepting where it sat on March 28 when Realogy bottomed briefly at $10.92. Throw out the super high P/Es from 2014 and 2015 as outliers and RLGY typically trades around 18.9x forward earnings. A normalized yield is about 1.33%. At its April 7, 2019 quote, RLGY was available for just 8.1x Value Line's year-ahead profit projection, accompanied by a 2.95% current yield. A conservative, regression-to-the-mean valuation bounce suggests a 12-month target price of $27 is quite reasonable. Achieving even that modest goal would bring a better than 121% gain on top of any dividend payments collected along the way. My $27 target is not far-fetched. RLGY peaked between $28 and $55 during each of the seven calendar years 2012 through 2018. It hit $18.70 earlier this year. Fundamentals appear poised to grow significantly now that Federal Reserve policy has loosened up again. Value Line's analyst sees RLGY's EPS reaching $3 per share over the coming three to five years. Its 2022-2024 projected price range is based on a historically below-average 16x multiple. Three company insiders, all directors, felt RLGY was a great buy last November when it traded around $17-$18. We can now buy substantially cheaper than they did. After buying Realogy all the way down, it now stands as one of my top-four largest dollar holdings. I have every reason to believe RLGY will do just as well, or better, than Griffon has done already. Realogy is no longer a falling knife. It is up 11.8% from its recent low and showing clear signs of a revival. Few stocks offer this kind of upside potential while paying bond-like yields while you wait. Options on RLGY are available with expiration dates extending out as far as Jan. 15, 2021. Buy RLGY shares with a primary goal of selling in the $20-$25 range, and a longer-term target price range of $30-$40 per share. Accept the market's gift.

When the Market Gives You a Gift, Just Accept It

When good stocks take a beating, they can be a gift to investors with the patience to ride things out.

Columnist Conversation

A Recent Director Buy in Children's Place (PLCE)

A $525,000 Vote of Confidence on Macerich (MAC)

This Weekend on Real Money

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.