Skip to main content

Turnaround Candidates: 75% Club

Jan month of 2012 is almost over and to stock investors, this month is turning out to be a pretty good month. This also means that 2012 overall would be a good year to be in stocks (as per statistics over decades). The markets are becoming more and more "stock pickers" markets. Forget about index investing in 2012. It's all about picking up right trends and stocks. Keeping that in mind, here is one idea of screening potential picks. I called it as "75% Club". The criteria is simple:

  • Identify stocks which are down by at least 75% in last 12 months (52 week high/low should be 4:1)
  • Research why stock is down by 75%. There can be multiple reasons for stock to go down by that much -  fears of bankruptcy (EK), change in business conditions or competition (SHLD, solar sector), stupid mistakes by management (NFLX), regulatory environment (BAC), macro-economic conditions like housing downtrend (MTG)
  • Find out if companies identified are going to run out of money and hence may have to declare bankruptcy (AMR, EK) - avoid these companies at all cost. Since they are going towards -99% 
  • Wait till stocks reach equilibrium. Many stocks keep going down even if they are down by 75%. They need to form a base where daily movements become small. e.g. NFLX went down by nearly 80% when it dipped below $65
  • Check out corrective steps taken by management, change in macro-factors, competitive landscape. When you believe that these are changing for better, start thinking of putting some money into these stocks. Start small quantifies
  • Let stock appreciate by about 10-15% from it's 52 week low before making further investments. It's better to invest with rising tide than catching falling knife. While you may miss first 10-15% gains, if stock as really reversed the direction, there are at least 50% more gains to have. After all to recover lost 75%, stock has to climb 300%
So which stocks meet the criteria in 2012?

  1. NFLX (Hi: $310, Lo:$65, CMV:$122). 20% upside (Target: $150)
  2. RIMM (Hi: $75, Lo:$13, CMV:$16.80). 20% upside (Target: $21)
  3. RDN (Hi: $8, Lo:$2, CMV: $2.6). 30% upside (Target: $3.50)
  4. JASO (Hi:$8, Lo:$1.21, CMV: $1.8). 30% upside (Target: $2.50)
  5. CECO (Hi: $27, Lo:$6.30, CMV: $10.60). 20% upside (Target: $13)
  6. AMED (Hi: $38, Lo: $9, CMV:$10). 25% upside (Target: $12.50)
This should give you enough idea of "75% club" and potential turnaround candidates. Personally I do apply this in my investments. I wish I had applied this to single best investment of last decade (and still going strong) - Apple. It went down from over $25 to around $7 in summer of 2001. That would have been $900 (considering split in 2005).
Next week would be crucial week for Presidential election since most likely Florida would seal the GOP nomination. Mitt is going to win Florida primary and Gingrich has started seeing the writing on wall. maybe that's why he wants to have an American base on Moon so that he could help make Moon as state of America! What a joke - especially when it comes from someone who had 1/3rd chance of becoming US President as recently as last week. 

/Shyam

Comments

Popular posts from this blog

2025 = Is it going to be 1997 or 2000?

Happy Holidays... After 5 months of hibernation with no real reason than writing block, I decided to use quiet morning of Christmas day to start writing again. Lot has happened in last 5 months - in particular release of Animal Spirits with Fed starting interest rate reduction cycle and historic victory of President Trump for 2nd term. As the year turns into 2025 and stock markets at all time high, one would wonder, what's next?  To answer this, one needs to look back at 1920s and 1990s to give us some context on where markets may be headed. 1920s saw invention of televisions, radio, wider adoption of cars, vacuums, penicillin and many other which we consider household items now. These inventions created roaring 20s with markets going up by 500% eventually leading to crash of 1929. However during mid-20s, markets keep going up due to excitement of these inventions and end of World War-1 and Spanish Flu Pandemic. 1990s also saw many inventions - the key being launch of Netscape in 1...

And the Oscar goes to...

It's Oscar Sunday and time for predictions for few categories - before I digress into talking about drama in DC or markets.  First of all, I want to recognize the damage LA fires have done to the beloved areas of Los Angeles and impacted families across all spectrums. My heart goes out to them and wish them recovery and rebuilding of their lives... This year's Oscar nominees and post nomination period had been interesting to say the least. Due to this, the field is wide open in almost all categories and that's what makes prediction game so interesting. Just to set expectations, I would consider a win if I get even 50% predictions correct given the dynamics of nominees this year. So here are my predictions - "And the Oscar goes to..." Best Picture - Anora (surprise could be "The Brutalist") Best Director - Sean Baker for "Anora" (Surprise could be Brady Corbet for "The Brutalist") Best Actor - Adrien Brody for "The Brutalist"...

The Politics and Gamesmanship of TikTok!

TikTok is less than 3 hours from going dark on USA's east coast if TikTok owner Bytedance (and Chinese Government) follows thru its "bluff" to honor the law " Protecting Americans from Foreign Adversary Controlled Applications Act" which goes into effect on Jan 19, 2025. And suddenly there is lots of politics and gamesmanship around TikTok.. Let's look at the players and their positions US Congress: The " TikTok Ban" law was passed by congress with bipartisan support and coincidently it goes into effect one day before new administration takes charge. Everyone knew the exact date and time of oath taking ceremony of new President...but maybe the congress did not think that there would be change of President and did not bother to put effective date post new government taking charge...that created a window of 36 hours of "law being in effect" unless... President Biden: Biden himself did not think that he won't be President for 2nd term. S...