This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Here's Hoping for Some More Selloffs

This article originally appeared Jan. 26, 2014, on Real Money. To read more content like this, + see inside Jim Cramer's multi-million dollar portfolio for FREE Click Here NOW.

When the market plunged Friday -- with losses of around 2% for all three major indices -- I got excited. In fact, I would hope for more sessions like this next week.

Before you write me off as a traitor, understand the most fundamental law of investing: The price you pay determines the money you'll make when you close the deal. The best time to pick up stocks, then, is when prices are heading down -- so, particularly for value investors, days like Friday are what get the juices flowing.

General Motors (GM - Get Report), for instance, sank some 4% to around $37 Friday, bringing its total year-to-date loss to 10%. If you manage to bag this one -- preferably under $30 -- you'll be buying an asset that could be worth $50 or more in a couple years thanks to a streamlined manufacturing process, generally rising new-auto sales and the government's recent sale of its last GM shares, among other things.

eBay (EBAY), too, is on the radar screen now that activist investor Carl Icahn is asking the company to spin off is its crown jewel payment-processing unit, PayPal. While Icahn currently owns just a small percentage of the company, he has publicly told eBay that he is prepared for a proxy fight if necessary.

Must Read: Jim Cramer: I'm Sure the President Means Well

Icahn also recently added another $500 million to his stake in Apple (AAPL - Get Report), and he has begun to publicly complain about the company's failure to buy back more shares.

Away from this, when we see big market declines like that of Friday, they also create opportunity to grab incredible dividend yields. The AT&T (T - Get Report) payout currently yields at 5.5% -- but it may breach 6% if the market corrects by another 10%. These strong dividend payers also tend to better withstand selloffs because, as the yield simultaneously ticks upward, the stock tends to develop more underlying technical support.

For the bottom-fishers out there, there's J.C. Penney (JCP - Get Report), a stock that continues to test limits. As of its Friday close at $6.70, shares are worth 65% less than year-ago levels. The lessons of struggling retailers should not be ignored: Very few make it back to the good old days. Just look at RadioShack (RSH), Sears (SHLD) -- and, most recently, Best Buy (BBY), whose massive 2013 share comeback took a major blow earlier this month on dour holiday-season numbers.

That said, J.C. Penney in particular has real estate and the stock trades at 80% of book value. If the shares were to reach 50% of book, the price might be right.

Yes, human nature desires action. Nothing is more difficult than doing nothing. French mathematician Blaise Pascal once wisely observed that man's misery comes from his inability to sit in a room alone, and that's especially true when it comes to investing. But if you sit still long enough, Mr. Market will bring the prices to you.

At the time of publication, Gad had no positions in the stocks mentioned.

Sham Gad is the managing partner of Gad Capital Management, a value-focused investment firm based in Athens, Ga. Gad has written extensively for The Motley Fool and was a securities analyst for UAS Asset Management, a small value investment fund in New York City, in 2007. From 2002-2005, Gad managed assets for the Gad Investment Group.

Additionally, Gad has just released a new book, The Business of Value Investing: Six Essential Elements to Buying Companies Like Warren Buffett. He earned his BBA and MBA at the University of Georgia. Gad appreciates your feedback; click here to send him an email.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free

Markets

Chart of I:DJI
DOW 15,953.63 +293.45 1.87%
S&P 500 1,862.48 +33.40 1.83%
NASDAQ 4,334.9560 +68.1190 1.60%

Our Tweets

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs