Don't fall for the popular notion that these stocks represent value plays. Doing so triggers dangerous assumptions. These types of stocks, including a stock I am long -- Nokia (NOK) -- belong in the speculative section of your portfolio.
Value, as popularly defined, sucks you in. If it's a value at $10, it must be even more of a value at $5. I am not saying you should never buy a stock at $10 and then at $5. I have purchased NOK from $3.50 down to near $2.
I have bought shares of Pandora (P) at prices ranging from $9 to $16. They're both speculative plays -- NOK is short-term speculative (as in 3-9 more months), while P is long-term speculative (time horizon measured in years).There's no deep value in NOK. Just as there's no deep value in RIMM or BBY. These companies run the risk of going out of business. They're attempting -- some better than others -- to execute massive turnarounds. In these cases, shareholders might actually win if the companies "lose"; a buyout could possibly add "value." There's that word again -- "value." If Microsoft (MSFT) shells out $3 a share for Nokia, it assigns the company a value. Generally, in these situations, the market follows. However, absent an acquisition, analysts and investors cannot merely run numbers and call a stock -- be it NOK, RIMM or BBY -- a value. While your "model" might spit out a value of $14.42 for RIMM on the basis of patents, real estate, brand, product pipeline and such, it means nothing until the big money -- be it in the market as a collective force or a corporate buyer -- agrees and sets a own price. There's no reason why the big money cannot just let uncertain specs like RIM dissolve.
The low P/E ratio plays -- F and RSH -- represent equally as speculative bets. Profits hang by a thread in uncertain businesses in evolving spaces in a shaky world economy.
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