One question I am frequently asked is why I spend any time looking for long ideas and discussing cheap stocks when I think the market is going lower. The answer is very simple: At times I am going to find stocks so cheap I want to own a little regardless of market outlook.
When I find a stock selling for less than net cash or way below tangible asset values, I want to own a little. History and experience have taught me that stocks such as Electro Scientific (ESIO) should just be purchased regardless of what the market may do. Here you have a stock at half of book value, near cash levels, and with David Nierenberg as a substantial shareholder. I will take my chances relative to the market. My margin of safety is so large that I am comfortable owning it.
The other reason is that although I was politely asked to leave the local Cub Scout troop as a boy for various offenses involving firecrackers, pumpkins and a pack leader with no sense of humor, I do admire the motto -- "Be Prepared." I do think this market is going lower. The economic and financial conditions justify lower prices in my mind. I also have no idea how long it will take to work down to levels that would make me a buyer. It could just continue as we have so far in 2009 -- ticking down day by day. We may have a cataclysmic event that causes a steep one- or two-day sell off. The time to shop for a fire extinguisher is not right after you spill grease into an open flame. I want to be ready with a list of stocks with solid asset values and recovery potential.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV