I had a brief discussion recently with a long-time acquaintance about ways to search for stocks that present bargain opportunities. I told him that one of my favorite slightly offbeat screens was to look for companies that are losing money now but are expected to make money next year and grow over the next five years. I also like these stocks to be down this year and be generally unloved.
I often make fun of Wall Street analysts and I would not bet on the accuracy of their guesstimates; however, they usually get the plus/minus and trend correct, so it's a useful screen. Wall Street notoriously over-weights the near term and under-weights (if not ignores) the long term, so the screen can find interesting value candidates. The resulting list is valuable for identifying trends and clusters that contain useful information.
When I look at this morning's output, I see many basic-materials companies: miners, steel manufacturers and metals are well represented on the list. For there to be any lasting global economic recovery, these companies must turn the corner. It's an optimistic sign that most analysts expect to happen in 2014.
This article originally appeared on March 20, 2013, on RealMoney. To read more content like this + see inside Jim Cramer's $3 Million portfolio for FREE Click Here NOW.The list contains some of my favorite long-term stocks. Gafisa (GFA) makes the grade as earnings are expected to turn positive next year. Brazil should turn the corner economically and that will be good for this homebuilder in the long run. The stock is cheap after posting a larger-than-expected loss. Trading at just 70% of tangible book value, the stock has the potential for enormous long-term gains. ArcelorMittal (MT) shows up on just about every screen I run these days. It is one the world's largest steel companies, and it should see earnings improve along with the global economy over the next five to 10 years. It may be a bumpy ride in the short term, but the stock is cheap trading at just 50% of tangible book value. National Bank Holdings (NBHC) is the lone bank on the list of earnings-rebound stocks. The Colorado-based bank has 103 branches in Kansas, Missouri and Colorado and posted a loss for the year. But a little digging shows that the loss was related primarily to initial public offering expenses and this is actually a well-run bank with great long-term potential. The stock trades just below tangible book value and has an equity-to-assets ratio above 18, so it qualifies as a Trade of the Decade bank stock. Non-Performing loans are 2.21% of total loans, but the picture is even better than that as 43% of the potential losses are covered under FDIC loan-loss agreements.
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