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), 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.Icahn also recently added another $500 million to his stake in Apple (AAPL), 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) 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), 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.
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