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"PIGS" derailing Recovery ?

Debt troubles in "PIGS" countries - Portugal, Ireland, Greece and Spain seem to be threatening nascent worldwide recovery. It is reflected in losses in stock markets over last 4 weeks - some of these losses approaching 10% which would qualify for a technical correction. So are troubles facing these countries similar to what happened to financial companies in 2008 resulting in Bear, Lehman, AIG and many other fiasco ? Governments used to be last stop which bailed out these banks. Who will bail out these countries ?

Fortunately (or unfortunately as some may think) these countries are part of EU with Euro as single currency. EU and Euro is too important for all Europe and then big European nations like Germany and France won't let Greece or Portugal derail complete EU. So my prediction is that these countries would be bailed out by either EU or IMF but they would have to pay price by making sure that their budget deficits are brought under control in next 2-5 years.

Now coming to DOW going below 10000 - this was kind of expected but no-one predicted that it would happen so soon and with so much volatility. Looking back, this looks very similar to July 2009 when DOW went down from 8800 to 8000 before starting its ascent again. Even in Oct 2009, it came down 400 points in few days. So after every earnings season, investors want to cash out their gains bringing markets to reasonable levels.

Is this time to buy ? I think recent pull-down offers very good opportunities for stock-pickers. Here are 3 stocks I am watching and may take some positions:
  • Eastman Kodak (EK) - around $5.5 to $5.8. Considering Kodak is finally getting some licensing fees on their 1000+ patents, this would be interesting play. They are suing APPLE/RIMM for patent violation. This could be equivalent of Rambus of digital photo technology
  • General Maritime (GMR) - around $6 to $6.5. This is dividend paying oil shipping company. Once world-wide economy recovers, demand for oil shipping would improve. One risk is suspension of dividend. However as long as they resume dividends again in 2011, this is good company for great yield
  • Hercules Offshore (HERO) - Around $3.6. I recommended this company around $5 - that was before market pull down. At $3.6, this is even better buy and could offer quick 50% return when stock recovers over $5
So if you are willing to take risks, there are quite a few stock picking opportunities similar to Mar 2009. At that time who thought Bank of America would be $15 in 10 months (it was selling below $3 in Mar 2009).

Have a great SuperBowl weekend. I am predicting COLTS win.

/Shyam

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